Global stocks snapped higher on Tuesday, in line with a retreat in bond yields that sucked money from perceived safe-haven assets. But tensions in the Middle East kept investors on edge.
Investors were also eyeing a speech by Federal Reserve Chair Jerome Powell later in the day at an annual conference in Jackson Hole, Wyoming, that’s often used as a forum to signal policy changes. Hopes have been growing that the Fed may be nearing an end to its bond-purchasing program, which has helped keep interest rates low.
But the rebound in the global stock market is primarily driven by a handful of large-cap growth stocks, and the broader economy remains vulnerable to a slowdown. “I think it’s important to remember that the current rally is not based on solid fundamentals,” said Paul Zelt, head of global asset allocation at UBS Wealth Management.
For example, the price-to-earnings ratio of the S&P 500 index hovers around 20, which is high relative to history. But if you exclude the seven best-performing stocks, including Apple (AAPL), Microsoft (MSFT), and Amazon (AMZN), the ratio drops to a more reasonable 17.5.
A rally by emerging markets and a rebound in oil prices lifted sentiment across much of the globe. The MSCI Emerging Markets index rose 0.8% to its highest level since March, while Brent crude climbed almost 4%. The rise in oil prices was partly due to a reversal in investor sentiment following the conflict between Israel and the Palestinian Islamist group Hamas, which began over the weekend.
In China, investors were also encouraged by data showing a recovery in the country’s small and medium-sized enterprises. The data, compiled by the Ministry of Commerce, eased worries that the Covid-19 pandemic had hit economic growth in the world’s second-largest economy.
Investors were also buoyed by signs that China is easing lending standards, which could help ease pressure on the country’s debt. Earlier in the day, a provincial government unveiled new measures to encourage home buying, including loosening downpayment requirements and allowing buyers to borrow up to 100% of the value of their homes.
Other shares that gained ground included tech and energy companies, with Boeing (BA) up 2.3% after announcing it had received regulatory approval for the new software for its grounded 737 MAX jets. The company also disclosed that CEO Tim Cook sold $88 million of the firm’s shares, his largest sale since 2021.