How a Wall Street bull run that smashed all the records evolved

Wall Street Bull

The S&P 500 share index is due to break the record for the longest bull market in US stock market history on Wednesday.

Related: Wall Street poised to set record for longest rally in history

Here are the main reasons for nearly a decade of rising share prices on Wall Street.

Federal Reserve policy
In the decade since the global financial crisis, central banks around the world have kept interest rates low and pumped billions of pounds into their economies through quantitative easing – acquiring bonds from financial institutions – to help reboot economic growth. Low interest rates help consumers and businesses to borrow more to spend in the economy, helping with economic growth and driving stock markets higher.

During the depths of the 2008 crash, the Federal Reserve cut interest rates to 0.25% by the end of the year to provide emergency support for the US economy, in a move that has boosted stocks.

Although the Fed has begun raising interest rates again, aiming to prevent higher levels of inflation, many economists believe the US central bank is still helping to boost the American economy. However, Trump publicly criticised Fed chairman Jerome Powell this week for raising interest rates, saying the central bank should do “what’s good for the country”.

The S&P 500 is set to record the longest ever bull run

Global economy
The strength of the global economy has helped US stocks. There had been fears that China would suffer a hard landing after years of supercharged economic growth, yet Beijing has managed to record slower growth without a total collapse.

Chinese growth might have come down from an annual growth rate of more than 10% in 2010 to 6.9% last year, but it has far from crashed as feared, helping to drive forward the global economy – and many American companies in the S&P 500.

The eurozone sovereign debt crisis snared the European economy straight after the financial crisis, causing problems for US markets, although never enough to unseat the bull market under way since 2009. More recently, the eurozone appears to have come through the worst of the crisis, helping further propel global economic growth and to support US stocks.

There are risks emerging in Italy, facing a potential budget clash with the EU, while there are also problems in some emerging market economies, including Turkey, Venezuela and Argentina. However, analysts say the risks remain idiosyncratic and manageable for the wider global economy, for now.

World politics
Stock markets have largely avoided the impact of geopolitical disruption over the past decade, despite international crises such as the Syrian civil war and the rise of Isis. Brexit, the annexation of Crimea and regular sabre-rattling from North Korea have also failed to shake American investors. Overall, the global political environment has been benign for markets since the turn of the decade.

Fiscal policy
Barack Obama’s stimulus package for the US economy – worth about $1.4tn in tax cuts, spending and other measures during his presidency – was unfurled straight after the financial crisis to avert a damaging and slow recovery from the crash, with the support helping America get back on its feet.

Since then, Donald Trump’s tax cuts, brought in at the tail end of the record bull run, have helped turbocharge American corporate profits. The president cut the US corporate tax rate from 35% to 21% from the beginning of 2018, arguing it would help companies to create more jobs. Critics said the cuts would instead line the pockets of the richest in society.

Second quarter profits for American companies were around a quarter higher than they were a year ago, according to Andrew Milligan, head of global strategy at investment management firm Aberdeen Standard, who said the tax cuts had provided much of the uplift. “The tax cuts put the afterburners on already strong profits,” he said.

Powered by Guardian.co.ukThis article was written by Richard Partington, for The Guardian on Wednesday 22nd August 2018 19.15 Europe/London

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