Hypothesising as to Why Equity Markets are so Strong

It is hard to believe the various equity markets in the USA and Australia are so strong when there is little reason to explain it ... except the expectations for a falling interest rate. Could it be that simple? The Economist had a few things to say on the matter.

First of all it gives a glass half full assessment of the world economy, saying just 5% of countries are on track for a recession, according to IMF data - the least since 2007. Unemployment in the OECD club of rich countries is below 5% and close to a record low. In the first quarter of 2025 global corporate earnings rose by 7% year on year. Consumers across the world, despite claiming to be down in the dumps, spend freely. On almost any measure, the world economy is basically fine. More than half the rich world's stock markets are within 5% of their all-time high.

The Economist talks about how the markets have learned to live with polycrisis, a term it uses to account for all the global conflict and disruption we read about every day. It seems to be saying this is the new reality, to which markets have become immured to. They have become shock absorbent. Wall Street's fear gauge, the VIX, an index of stock market volatility, is running below its long-term average. So there is a puzzle: chaotic geopolitics and a placid economy with rising stock markets.

Have the markets really evolved to this attitude, or is it just a case of hypothesising? Only time will tell. In the meantime, the resource stock markets will always have its own stock specific concerns that will override general trends. 

 WeeklyComm26July2025.pages.pdf