The recent surge in stocks during November shows a world that is poised for a strong recovery. A current question is whether that surge can keep pushing higher. Typically, this time of year is very strong for stocks and a ‘Santa Rally’ is a well-known seasonal phenomenon. Stocks rise in December as a general rule of thumb. Furthermore, as long as the US stimulus bill is being anticipated, this should keep stocks supported in the near term. However, the US stimulus bill aside, here are some key indicators from a Bloomberg Opinion piece on why the globe is now in a cyclical recovery.

Key indicators a global recovery is underway

1. South Korean and Taiwanese stocks lead the surge higher
These two industrial exporters of North Asia benefit from being in China’s slipstream. They are both strongly higher.

2. Industrial metals are soaring

Iron ore is up around 50% on the year and Copper is at a 7-year-high having gained around 30%.

3. Transport stocks

Another bellwether for global growth, transport stocks have overtaken the market in their steady grind higher

Where will the market go next?

This is where things become more unclear as no-one has a crystal ball. However, some key themes to watch are:

  • How much have future stock returns been borrowed this year from all the central bank intervention? Can the surge higher in stocks continue and, if so, for how long?
  • Are risk assets too expensive? When is a correction due?
  • Large amounts of money supply should result in inflation. Look at the large amounts of money supply added into the US on the chart below. The last time that money supply was increased this much (around 1944 on the chart) inflation surged to over 15% in the US.