Stock market rally has firm foundations but also risks

Significance

The US stock market and especially the seven largest technology companies have powered the rally, but markets in Europe and Asia have also risen on better-than-expected economic data and the delivery or expectation of policy stimulus. However, consumers remain more pessimistic about the near-term outlook.

Impacts

• China’s stock market has momentum; the MSCI China Index has gained 25% since January 21 on better economic data and more forceful policy.
• Policy divergence prompts currency volatility; sterling hit a 21-month high to the euro on UK rates likely falling after euro-area rates.
• Fears about limited scope for looser monetary policy -- which have driven large EM bond and equity fund outflows in 2024 -- will persist.