Over the last few days we have seen a number of high profile companies pulling their listings on the London stock exchange. While the situation in the UK is slightly different to that in the US, with Brexit and this week’s interest rate rise, there is a perception that maybe markets have peaked in the short term. So, will new issues in the US take a breather as they are in the UK?
US forecasts still strong
While we know US interest rates will continue to tick higher in the short to medium term this already seems to be factored into the stock market. Economic growth is picking up, the employment market is relatively strong and despite Donald Trump’s attempts to meddle with business, aside from the odd mess such as Bombardier, things could be a lot worse. We have not seen an awful lot of high profile new issues in the US over the last few weeks with Snapchat perhaps the biggest this year.
Historically stock markets seem to get a deluge of new issues as the market begins to top out but this has not happened in the US. The indications are that while markets will be volatile, and cannot go up in a straight line, perhaps there is a little further to go in the current US stock market rally?
US markets rising gradually
What is interesting is the gradual rise in the Dow Jones Industrial Average Index which has gone from 17,930, 12 months ago, to 23,516 which is an increase of just over 31%. Over the same period the UK FTSE 100 index, the leading index in the UK, has increased by just over 11% which not only reflects the underlying economic performance but also confidence going forward. If you take a look at the graphs it is also obvious that the US recovery has been gradual while the UK FTSE 100 index has been extremely volatile at times. This demonstrates the underlying strength of the economies and perhaps the fact that the US economy has been better managed by the Federal Reserve – despite Donald Trump attempting to take over!
Watch the technology sector
Perhaps the most obvious sign that the US market is topping out will come when the technology sector and the NASDAQ index begin to fall. Even though many technology companies are profitable there are a significant number who are some way of breaking into profitability. It is these share prices more than any other which reflect the strong sentiment for technology stock and the US economy as a whole. Once these shares start to fade and fall away this could be a very early indicator of a change in sentiment and perhaps a short to medium term change in the direction of US stock markets.
As we touched on in one of our earlier articles, we can only guess where US stock markets might have been if Donald Trump had not won the presidency. He has caused ructions with overseas partners, alienated many of the US population and even his supporters are apparently thinking again. Many people are hoping that at some point he does kick in with some of his more radical policies which should have a positive impact upon the US economy and the US employment market.