S&P 500 and NASDAQ hit new highs amid irrational exuberance

By Trevor Hoey. Published at Aug 25, 2020, in Market Wrap

The S&P/ASX 200 index (XJO) increased 19 points to close at 6130 points on Monday, with Afterpay (ASX: APT) continuing its surge to hit a record high after announcing the proposed acquisition of Spanish credit provider Pagantis.

Reliance Worldwide Corporation (ASX: RWC) delivered a promising results that came from left field given the global construction industry has been awash with dour news.

However, RWC is exposed to the essential services side of the industry through its plumbing supplies operations, perhaps providing investors with some ideas as to how to tap into a depressed sector where the outlook is looking fairly glum.

From a broader perspective, it was IT and telecommunication stocks that once again led the way.

With strong leads from overseas markets spurred on by good news on the coronavirus vaccine front and some strength in the oil price, it should be another positive day and the ASX SPI200 index is up 39 points to 6132 points.

24 hours

Markets across the broader Asia-Pacific region all finished in positive territory on Monday with the Hang Seng being the standout performer, rising 1.7% or 437 points to close at 25,551 points.

The gains were more measured in China and Japan with the Shanghai Composite up just five points to 3385 points and the Nikkei 225 gaining 0.3% to close at 22,985 points.

The mood was decidedly bullish in Europe with the FTSE 100 gaining 1.7% or 103 points to close at 6104 points.

The DAX was the standout performer, gaining 302 points as it pushed above 13,000 points to close at 13,066 points.

The CAC 40 gained 2.3%, marking its own milestone as it edged above 5000 points, closing at 5008 points.

Ironically though, it was US markets that continued to surge in the face of a COVID riddled backdrop.

With 5.9 million coronavirus cases and more than 180,000 deaths, the S&P 500’s rise to a new record high of 3431 points is unconscionable.

Fed Reserve chairman referred to the dotcom boom/bust euphoria that marked the new millennium as ‘irrational exuberance’, and that pretty much sums up the state of play in US equities markets.

The same can be said of the NASDAQ which made another record high of 11,462 points before notching up a record close of 11,380 points, up 0.6% on the day.

While the Dow isn’t at the record-setting stage, it gained 378 points or 1.3% to close at 28,308 points, its best close since February before the US was really gripped by coronavirus.

Many analysts are citing the better than expected reporting season for the gains, but this season’s company results aren’t representative of the pandemic’s near to medium term future impact.

The litmus test will be in the next 12 months when the true economic fallout on the country and its industries will become apparent.

Businesses and consumers have been propped up by government stimulus packages during the results period that is currently being reported.

High levels of unemployment, business closures and mortgage stress will take its toll in the coming 12 months, and the 2021 reporting season should be the focus for investors.

Throw into the mix the uncertainty of a presidential election, some of the worst race riots in history and growing ructions on the geopolitical scene, and there isn’t too much to like aside from some stunning index charts that appear to be founded on false hopes.

On the commodities front, the Brent Crude Oil Continuous Contract closed in the vicinity of US$42.50 per barrel, up from last week’s levels of about US$41.50 per barrel.

After pushing above US$1960 per ounce early in the session, gold trailed off later in the day, and it is currently fetching about US$1936 per ounce.

Iron ore also continued its retreat, falling nearly 2% to about US$125 per tonne.

While there was little movement in base metal prices, nickel continued its bull run, recording a seventh consecutive day of gains as it closed at US$6.73 per pound with US$7.00 per pound appearing to be a real possibility.

There was little movement in the Australian dollar, and it is currently fetching US$0.716 stop

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