Is the global stock market rally a gamble?


The global stock market rally represents a gamble by investors that central banks will ignore the risks of a buildup in debt and continue to provide support at the current record levels, the International Monetary Fund has warned .

In an update to its half-yearly global financial stability report, the IMF said central banks had been pivotal in the recovery of share prices from their Covid-19 trough but there was now a gap between the optimism of financial markets and the depressed state of economies.

The IMF said investors were “apparently betting on continued and unprecedented support by central banks”, adding that the disconnect between markets and the real economy raised the risk of another slump in asset prices that would harm recovery prospects.

“Markets appear to be expecting a quick ‘V-shaped’ rebound in activity”, the the report said, noting that the main bellwether of Wall Street – the S&P 500 – was out of kilter with signs of a deep downturn in the US.

“This has created a divergence between the pricing of risk in financial markets and economic prospects,” the IMF said.”

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