US jobs report boosts Wall Street, services lift UK shares and Japan’s Nikkei rises to 26-year high as as equity markets rally around the world
The Dow Jones Industrial Average has gone above the 25,000 mark for the first time, on another day of surging share prices on stock markets across the US, Europe and Asia.
In the UK the FTSE 100 closed at a record high on Thursday, tracking gains for equity markets around the world on a day when Japanese shares hit the highest level in 26 years.
The Dow rose by more than 25% last year, while the S&P 500 index made gains in every month of 2017 – something which has not happened for more than 90 years.
Positive readings on the health of the US economy helped to power the fresh surge on Wall Street, after the ADP National Employment report estimated that firms had added 250,000 jobs in December – much higher than the 190,000 job additions that had been forecast by economists.
World markets rose sharply after surveys for manufacturing and services activity this week pointed towards improving economic conditions in several countries.
There were positive readings from the UK’s dominant services sector on Thursday, suggesting the economy had its strongest quarter in the final three months of 2017. Meanwhile, European manufacturers this week reported the strongest month since before the creation of the euro.
The Dow had added about 150 points by early afternoon in New York after hitting a peak of 25,100 during the morning. American Express, chemical firm DowDuPont and computer company IBM were among the biggest risers.
US markets have been buoyed by Donald Trump’s corporate tax cuts that will help major companies to boost their profits. The US Congress pushed through the corporate tax rate cut from 35% to 21% last month, which have been labelled by opponents as a gift to rich people.
The president welcomed the fresh surge on the stock market, tweeting: “Dow just crashes through 25,000. Congrats! Big cuts in unnecessary regulations continuing.”
Although temperatures in New York were below freezing on Thursday, the buoyant mood among investors on Wall Street show little sign of deflating, with forecasters expecting further gains in 2018. But there are fears over the market overheating, as investors become complacent to emerging global risks.
According to fund manager Alberto Gallo of Algebris Investments, investors could be guilty of “irrational complacency” ahead of a rocky period in 2018, after such a strong rise for equities over the course of last year. The chief risk for this year could also be a “melt-up,” according to economists at TS Lombard, who warn shares may rise out of kilter with reality before a sharp meltdown.
Risks could arise should tensions flare up in the Middle East or between the US and North Korea. There is also the prospect of market turbulence as central banks around the world begin to remove their unprecedented levels of support for the global economy, as they wind down quantitative easing packages and raise interest rates.
Cheap money from the Federal Reserve in the US, the Bank of England and the European Central Bank have helped to inflate asset prices, as they pump money into buying bonds from financial institutions. That has depressed prices for debt and encouraged investors to pile into riskier assets, such as equities, to generate higher returns.
The weak pound has also helped to support the FTSE 100, which gained 24 points on Thursday, as many companies in the blue-chip index of UK companies generate much of their earnings in foreign currencies. The index closed at 7,695.88, higher than its previous record close set on the final day of trading last year.
Andrew Milligan, head of global strategy at Aberdeen Standard Investments, said very few parts of the world were not taking part in the current upswing in growth, which would help to power markets further ahead. He warned geopolitical risks as well as central banks withdrawing support too quickly could knock markets.
“Markets can continue to make progress in 2018. Maybe not quite as good as for 2017, but they will still make some quite decent progress – as long as company cash flow comes through,” he added.