International markets: How high records are interpreted in stock exchanges, gold and bitcoin

The prosperity that has prevailed in the world since the beginning of 2024 is impressive for a period when the global economy is still moving at lower levels than the historical average. Stock exchanges in America and Europe constantly record new high levels, while last week gold and bitcoin recorded historical records. Some analysts consider that the rapid rise in share prices is reminiscent of the Enter key bubble period in the late 1990s, known as the bubble from internet companies that were purchased unwittingly at the time, except that investment frenzy now concerns technology companies that exploit artificial intelligence (AI). The S&P 500 American stock index closed on March 5 with a 6.4% rise from the beginning of the year and 23.5% compared to the low level it had recorded in October, continuing the rally it had made in 2023, when the US economy developed at a rate of over 2% despite the increase in interest rates. The Nasdaq technology stock index also increased by 6.4% and 26.8%, respectively. Two-thirds of the rally on Wall Street is due to its ten largest technological companies, whose stock value is equal to the value of all shares together in the stock exchanges in Britain, Germany, France and Japan. Among these ten colossae are the “wonderful 7” (magnificent 7) – Apple, Microsoft, Alphabet (Google’s mother), Amazon, Nvidia, Meta Platforms and Tesla, which accounts for 30% of the total capitalization of S&P 500 companies but also in Europe, where the economy moves between stagnation and marginal recession, Stoxx 600 increased 3.5% from the beginning of the year, even though less strongly, last year’s rally. The view of creating a new bubble in American shares, shared by analysts from banks, such as JPMorgan and Morgan Stanley, or Capital Economics, is not generally accepted. There is also the contradiction from analysts, such as Goldman Sachs, who consider that the current period differs from that of the 1990s or since 2021, when a rally occurred after the nonviable coronavirus pandemic, with prices sinking the following year. The main difference, according to this view, is that the rise in indicators today is smaller than the past and concerns a limited number of shares and that the rise in indexed shares is “justified” by a corresponding large increase in their profits. It states, in particular, that US shares have played a 31% rally over the last three years against an increase of 98% in the three years to early 2000. According to calculations by Goldman Sachs analyst, overpriced shares today account for 24% of market capitalization compared to 35% in the bubble and are much less in number. He said Nvidia’s share – the company that is at the heart of the AI frenzy – ejected 255% in one year, but also its profits last year increased by 288%. On the contrary, in 1999 Nortel’s share had increased 320% but its profits had increased 94% in the same year. Another feature of the current market situation, which is rather unprecedented, is the simultaneous rise in gold prices along with shares. The spot price of precious metal increased 3.4% from the beginning of the year, reaching the level of 5 March – a record of $2,141 per ounce, while its rise is 16.9% compared to October. Traditionally, gold is considered a safe haven for investors in times of economic uncertainty or crises and geopolitical turbulence, i.e. when there is no willingness to take risks. Now, there seems to be a risk attitude by a large share of investors, but also the aversion to risk from someone else. The increase in the price of gold probably marks the concern that it can deflate the stock rally in conjunction with the concern about wars continuing in Ukraine and Gaza. The new historical record of bitcoin, the price of which exceeded Tuesday the $69,000, breaking the previous record since November 2021, probably confirms that there is at the same time a tendency to risk along with a more defensive approach. The price of bitcoin was ejected 50% in the first two months of 2024 and 132% since October, with a lever to create 11 funds in the US that invest directly in it and negotiate in the stock exchanges (ETFs) as well as the expected for April reduction in its new offer to half, which occurs about every four years. Bitcoin, as a cryptocurrency, is primarily a risk asset as its price volatility is much higher than shares. At the same time, however, for some of its supporters it is considered “digital gold”, due to its limited supply and suitable as a means of storing value. Source: RES – ICM