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Stocks ready for global five year high { June 27 2003 } Original Source Link: (May no longer be active)
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Markets on course for global five-year high
By Vincent Boland in New York
Published: June 27 2003 20:27 | Last Updated: June 27 2003 23:59
Stock markets around the world are on course for their best quarter for nearly five years amid growing optimism about prospects for the global economy after the end of the war in Iraq.
With one trading day remaining in the second quarter, the S&P 500 index has risen 15.1 per cent since April 1. This is the strongest three-month climb since it rose 21 per cent in the final quarter of 1998, just as the 1990s bull market was about to climb to its peak.
The Dow Jones Industrial Average is up 12.5 per cent over the period. Stocks fell just under 1 per cent in the US on Friday but the underlying mood is one of cautious optimism.
The bond markets have also had a strong three months, although the US Federal Reserve's latest rate cut appears to have halted the bull market in US Treasury bonds. The Lehman Brothers index of long-term US Treasury bonds has climbed nearly 5 per cent since April 1.
Stock markets in Europe and Asia have also done well. The FTSE Eurotop 300 index of Europe's largest companies has climbed 15.7 per cent, its best three-month gain since the last quarter of 1999. The Nikkei average is 14.2 per cent higher, its best performance since the first quarter of 1999. "The turning point was the end of the war in Iraq," said James Paulsen, chief investment strategist at Wells Capital Management.
One of the most spectacular gains has been in the Nasdaq stock market and its clutch of telecommunications and technology companies, which are enjoying a remarkable turnround. The Nasdaq composite index is 21.2 per cent higher so far this quarter, after ending the first quarter unchanged from its level at the end of 2002.
Most stock market indices had tumbled in the first quarter, sparking fears that a three-year bear market was set to endure. The S&P index fell 3.6 per cent and the Dow was down by more than 4 per cent. The gains in this quarter have fuelled hopes that 2003 will be the first year of positive returns since 1999.
Francois Trahan, chief market strategist at Bear Stearns, said a combination of reduced risk, improving earnings from companies and dividend yields that in some cases compared favourably to the returns available from bonds, were the main drivers of stocks in the second quarter.
But he pointed out that the gains were high because markets had fallen so sharply by mid-March.
Globally, the best-performing markets were almost all emerging market countries but Germany's 32 per cent gain made it the 10th biggest riser. Venezuelan stocks posted the biggest gains and Hungary's the worst.
US telecoms stocks have climbed nearly 23 per cent so far in this quarter, and information technology stocks by 19 per cent, according to Ned Davis Research. Financial stocks and utilities were the other big movers. Even the energy sector, racked by controversy and scandal since the collapse of Enron, has turned positive, posting a gain of nearly 8 per cent.
The Fed's decision this week to cut US interest rates by 25 basis points, taking the federal funds rate to 1 per cent - the lowest in four decades - appeared to have disappointed many fixed-income investors, who had been expecting a cut of 50 basis points.
The fact that both bond and stock prices had a strong quarter is also puzzling some analysts. Bond prices often fall when stock prices rise, but in recent months they have been moving in the same direction.
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