Lukman Otunuga @Lukman_FXTM
Global equity markets have posted significant gains over the past couple of months with major indexes lurching towards multi-month levels and some U.S. equities are closing at record levels mainly on the expectations that central banks will keep monetary policy accommodative for an extended period.
The combination of optimism over central banks intervening through stimulus following Brexit concerns have left investors searching for yield, which is why they have become attracted to riskier assets. Wall Street continues to be a star performer and the S&P 500 has already ventured towards milestone highs with sentiment towards the U.S. economy appearing stable.
Although the current rally is undeniably bullish, it is becoming increasingly clear that the driver behind the upsurge is sentiment rather than fundamentals. Concerns remain elevated over slowing global growth while depressed crude oil prices have noticeably eroded investor risk appetite. With uncertainty still a recurrent theme in the global markets, questions could be asked over the sustainability of the current market rally.
There is no indication at this point that investors are concerned over the upcoming U.S. election. While any signs of political risk can always be a threat to investor sentiment, this period of central banks maintaining an easing stance could still spell further gains for equity markets at least for now as investors drive for yield rather than focusing on the fundamental outlook of the global economy.