Asset prices in The Monday Briefing
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The return of risk appetite to the boardroom, boosted by vaccine rollouts and strong growth over the summer, has led to a surge in global mergers and acquisitions activity. Around $4tn of deals have been announced since the start of the year, putting 2021 on track to break the previous record set shortly before the financial crisis (strong though these numbers are, the volume of activity, if adjusted for growth in equity values, is below the previous peak).
In the wake of a blisteringly fast economic recovery have come bottlenecks, supply shortages and inflation. Over the summer the US Federal Reserve’s favoured measure of inflation hit the highest levels in almost 30 years. Unexpected though it is, today’s inflation surge is widely seen as temporary.
The V-shaped recovery from the pandemic has brought with it supply shortages and rising prices. From semiconductors to McDonalds milkshakes, stories of shortages abound.
There may still be a few readers of the Monday Briefing who were early adopters, back in 2008. If so they may recall my enthusiasm for antique furniture as, “a functional, proven asset at a low price”. Prices may have looked low then, but in the ensuing 13 years they have, by and large, fallen still further. In a world where the value of equities, bonds, commodities and houses have soared the value of antique furniture has slumped. This week’s briefing looks at what’s behind this decline.
Economic shocks tend to hold back house prices. But one of this pandemic’s peculiarities has been how it has supported housing markets. Despite bringing about the sharpest downturn in almost a century, the pandemic has fuelled a housing boom in the developed world.
Our summer quiz offers an eclectic test of knowledge, of pandemic-related developments, many in economics and business. The answers and a brief explanation of the factors at work are at the end of the quiz.
You may not have been able to get to your preferred holiday haunt this year, but we hope that our summer reading list will offer a distraction wherever you spend your summer break. The eight articles are available free online, although some websites restrict the number of articles that can be accessed without charge each month.
The S&P 500 closed on Friday at a new all-time high. Since last year’s pandemic-induced crash, the index has almost doubled in value, reflecting a surprising feature of the COVID-hit global economy – buoyant equities. Indeed, stocks have rallied since last March, when the global economy was on the verge of the deepest downturn in more than a century. So far, investors have shrugged off a deadlier second wave, further lockdowns, the more transmissible Alpha and Delta variants and, most recently, concerns over rising inflation.
Commodity prices have boomed over the last year, boosted by low interest rates and a snap back in global demand. The Goldman Sachs commodity index has risen by 55% from its low and the rally has been broad-based, lifting metals, oil and agricultural commodities.
The saying “Never make predictions, especially about the future” is attributed to individuals as varied as the physicist Niels Bohr and the baseball player Yogi Berra.