Stock markets keep calm and carry on

Wed Feb 18, 2015 2:02am EST
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By Mike Dolan

LONDON (Reuters) - War, financial crises and deflation again haunt the markets in the new year, but stocks somehow keep calm and carry on.

There's something a little eerie about watching equity markets on Wall Street or in Frankfurt and London wend their way to new records or multi-year highs against a backdrop of smoldering conflict in Ukraine, a real risk of Greece leaving the euro and angst about consumer price deflation worldwide.

On the face of it, all pack a potential punch to business and banking confidence, spending by indebted households and the bottom lines of companies and governments.

But the fact that historically expensive blue chip stocks continue to climb a 'wall of worry' shows either investor complacency or a less obvious reading of the state of the world.

To be sure, there is no shortage of doomsayers predicting it will all end in tears, and many fear we're in the final throes of one of the longest equity bull markets in history.

Others decry the asset inflation as a pernicious side-effect of central bank money printing that merely exacerbates the gulf between the 'super-rich' and the rest of the population.

All that may be true. But there are prosaic explanations for why the steady grind higher in stock markets has lasted so long and shows so little sign of tiring.

Four issues dominate: persistent if unremarkable world growth; super-loose monetary policy and a large global pool of new central bank cash; the relative attraction of equity dividends in a world of zero or even negative bond yields; and stimulus from the energy price collapse of the past six months.   Continued...

Traders work on the floor of the New York Stock Exchange shortly after the opening bell in New York February 11, 2015. REUTERS/Lucas Jackson