Why will European markets reach record highs tomorrow? Things aren't rosy.

maxsteam

It just doesn't make sense. Tomorrow morning, many European markets will be opening at record highs. The DAX has been steaming into new territory and closed on Thursday at a record 15107 and will open tomorrow at yet another new high (15350?). The Paris CAC has been tentatively testing the ground above the highs of January 2020 and will similarly open tomorrow at a new record high. The Amsterdam AEX had not gone above 700 before last week and is set to top 720 tomorrow. 

All this is happening in the markets at a time when some companies are not even allowed to trade. European hesitancy about vaccination programs is due to cause a tough period ahead for Europe with more lockdowns and more deaths. The money that governments have been borrowing and throwing around to keep businesses alive will need paying back at some point. What is the reason for such optimism in the markets? It just doesn't make sense.

The best explanation that I've heard is that there are lots of people with money in their pockets and time on their hands who are playing with the markets for the first time without understanding the basics of what they are doing. Unless there's a better explanation, it will surely end badly.

Thrugelmir

Europe like the UK offers pockets of value compared to the US. Money will flow around the markets accordingly.  Markets are looking constantly into the future not just at what's happening tomorrow.  

darkidoe

It seems to me that the only thing that can make markets bearish is unexpected events that is not priced in. Everything else is priced into the markets.

poppy10_2

maxsteam said:

The best explanation that I've heard is that there are lots of people with money in their pockets and time on their hands who are playing with the markets for the first time without understanding the basics of what they are doing. Unless there's a better explanation, it will surely end badly.

Individual retail stock pickers make up a tiny proportion of the market. It is fashionable at present to blame Reddit etc for changes in stock prices but the reality is that it is the big funds and the central banks which influence the direction of markets. Central banks are flooding economies with newly conjured up money which ends up causing asset price inflation. Plus as Thrugelmir says, markets generally reflect what is going to happen in the future rather than what is happening at present. The S&P 500 returned over 23% in 2009 and 15% in 2010 despite the economy still being in the toilet with mass unemployment and small businesses going bust.

Thrugelmir

Some US investors have finally discovered that also VW makes EV vehicles. Tesla is not unique and is starting to have real competition. Solid rise in VW share price in past 3 months in what is a fairly illiquid market. 

Moe_The_Bartender

Tesla do lots of things other than make cars.

HansOndabush

Moe_The_Bartender said:

Tesla do lots of things other than make cars.

Like speculate on Bitcoin.

MaxiRobriguez

Multiple different answers here:

1) The stock market isn't the economy - many listed companies have been hardly impacted by the pandemic. Think some of the UK's biggest companies: Unilever, BAE, GSK, Astrazeneca... All of them have continued to do business as usual throughout.
2) Markets are forward looking. The pandemic pricing in started over a year ago.
3) Liquidity has been pumped in by central banks, with more money chasing the same amount of assets.
4) US markets are expensive and some US investors are rebalancing.
5) Inflation (expectations) have been rising and that's pushed a rotation from growth to value, which benefits Europe.
6) People have built up quite big savings and haven't been able to spend. Some of those people are not actively working if on furlough. Investing has kept them busy.
7) Some European markets have been flat for years, and was only a matter of time before they hit new highs regardless of economic picture at the time.

There's tonnes more if you want to look for them but I think Europe presents a better investment opportunity than the US at the moment and think there's room to run on it still yet.