Despite Reduced Expectations Regarding Interest Rate Cuts, Stock Prices Have Strongly Increased This Year

On Wall Street, stock indices slipped from record levels on Thursday as investors analyzed how sustainable the strong rise in stock prices in recent days is.

The Dow Jones fell by 0.10 percent to 39,869 points, while the S&P 500 slipped by 0.21 percent to 5,297 points, and the Nasdaq index by 0.26 percent to 16,698 points.

At the very beginning of yesterday’s trading, stock prices rose further after a strong increase the day before, with the Dow Jones breaking above the 40,000-point level for the first time in history.

However, later all major indices slipped from the record levels they reached the day before after the release of data indicating a slight easing of inflationary pressures in April in the U.S.

After that data, speculation revived that the U.S. central bank would cut interest rates twice in the second half of the year, in September and December, by 0.25 percentage points each.

However, the question is how good this news is, given that at the beginning of the year, speculation was that the Fed would cut rates at least five times this year, for a total of 1.5 percentage points.

Despite reduced expectations regarding interest rate cuts, stock prices have strongly increased this year, raising the question of whether this trend is sustainable.

Especially since the price-to-earnings ratio has significantly increased.

– Stock prices have risen sharply, so investors are analyzing the data. This year, earnings have significantly increased, so they could next year as well, but the price-to-earnings ratio has reached 21 to 22 times. We had good news and a lot of it is built into prices, so the market now has to grapple with that – says Thomas Hayes, president of Great Hill Capital.

In the upcoming period, market movements will largely depend on speculation regarding interest rate cuts.

– It seems that everyone is focused on what the Fed might or might not do, given that we started the year with expectations that rates would be cut perhaps even six times, and now those expectations have fallen to one or two cuts – says Silas Myers, director at Mar Vista Investment Partners.

And on European exchanges, stock prices also slipped from record levels yesterday. The London FTSE index fell by 0.08 percent to 8,438 points, while the Frankfurt DAX slipped by 0.69 percent to 18,738 points, and the Paris CAC by 0.62 percent to 8,188 points.

European investors cautious, indices slightly down

On European exchanges on Friday morning, stock indices slightly fell for the second consecutive day after reaching record levels mid-week.

The STOXX 600 index of leading European stocks was down 0.1 percent at 9:30 AM.

Meanwhile, the London FTSE index fell by 0.03 percent to 8,435 points, while the Frankfurt DAX slipped by 0.25 percent to 18,690 points, and the Paris CAC by 0.12 percent to 8,178 points.

Asian markets slightly down, dollar strengthened

On Asian markets on Friday, stock prices slightly fell, as they did yesterday on Wall Street, while the dollar strengthened against a basket of currencies, thus recovering some of the losses from the previous day.

The MSCI index of Asia-Pacific stocks, excluding Japan, was down 0.2 percent at 7:00 AM, after reaching a 15-month high yesterday.

This morning, the Japanese Nikkei index fell by 0.3 percent, while stock prices in Shanghai, South Korea, and Australia fell between 0.1 and 1 percent. In Hong Kong, however, they slightly rose.

Support for Chinese markets comes from government announcements of new measures to combat the real estate market crisis and investor hopes for new stimulus measures, given the weakness of the economy.

This morning it was announced that retail consumption in China rose only 2.3 percent year-on-year in April, while analysts expected a growth of 3.8 percent.

This is a significantly slower growth in consumption than a month ago, indicating weakness in domestic demand.