Stock benchmarks are scaling record highs: ‘Animal spirits are soaring’

Equities in several parts of the world have been rallying as easing inflation pressures, resilient corporate earnings and expectations for U.S. rate cuts boost investor sentiment.

The MSCI All Country World Index, which tracks the performance of over 2,500 stocks from both developed and emerging markets, has hit fresh record highs for four straight sessions, data from LSEG showed.

The S&P 500 closed at a record for a second day on Wednesday, while Japan’s Nikkei 225, South Korea’s Kospi and Singapore’s Straits Times Index have hit all-time highs this week.

The rally underscores how sentiment has flipped from earlier this year when fears of sticky inflation, geopolitical risks and U.S. tariffs threatened to derail growth, experts said. 

“Markets have been a bit more resilient than what we’ve been expecting,” said Eddy Loh, Maybank’s head of investment strategy. 

“Year-to-date performance has really been premised on still very robust economic growth, and, more importantly, corporate earnings. That is supporting equity market returns across the globe — not just in the U.S., but also Europe, Japan, and key markets in Asia ex-Japan,” said Loh.

A slew of recent U.S. data has indicated labor market weakness, with a surprisingly soft U.S. producer price index reading on Wednesday further lifting sentiment, as investors bet the Federal Reserve now has more room to ease policy.

U.S. wholesale prices unexpectedly slid 0.1% in August from the prior month, well off the Dow Jones estimate for a 0.3% rise.

“Stocks have hit fresh records as a much weaker-than-anticipated PPI depicted deflation rather than expected inflation,” said José Torres, senior economist at Interactive Brokers. “Animal spirits are soaring because the well-received print is bolstering probabilities that the Fed will deliver cuts during each of its last three meetings of 2025.”

Markets have priced in a quarter-point reduction at the Sept. 17 meeting, with CME Group’s FedWatch tool showing about a 92% chance of a 25-basis-point reduction.

Maybank’s Loh added that he is pricing in two rate cuts this year with September’s “pretty much” on the table.

“Given that we are building a stronger case for the Fed to restart its cutting cycle while the economy remains on fairly solid footing, this environment serves as a tonic for risk investors,” said Marvin Loh, senior global macro strategist at State Street.

Factoring in continued concerns about where long-term interest rates will settle, investors have been allocating capital to other asset classes such as equities, he said.

Oracle’s blockbuster outlook for AI-related revenue has amplified confidence that the tech-led rally has legs, said Torres. The cloud giant on Wednesday soared to an all-time high and had its best day since 1992, gaining $244 billion in market cap and is now at $922 billion.

Torres added that investors are now eyeing the upcoming U.S. consumer price index even more closely. “A downside shocker would create a trio of developments — payroll benchmark revisions, softer-than-projected PPI, and subdued CPI — which would justify a larger reduction by the Fed. That would drive stocks to another new record,” he said.

Maybank’s Loh, however, struck a cautionary note, saying that the markets will see a “more visible” impact of U.S. tariffs in the coming months as they only came into effect in August and could lead to some tempering of sentiment.