Asian stocks rise as global gauge hits new peak

Synopsis

Asian stock markets are performing well. US equity benchmarks reached new highs. This was supported by the Federal Reserve's interest rate cut. Stocks in Japan and Australia increased. South Korea remained stable. The S&P 500 and other indexes achieved record highs together. The yen remained steady after Japan's inflation slowed. The Bank of Japan's rate decision is expected.

Asian stocks were on the cusp of an intraday record high after US and global equity benchmarks hit fresh peaks, as the Federal Reserve’s interest-rate cut bolstered sentiment.

Stocks in Japan and Australia opened higher while South Korea was flat. The S&P 500, Nasdaq 100, Dow Jones Industrial Average and Russell 2000 small-cap index all closed together at fresh highs for the first time since November 2021. An MSCI index of global stocks also closed at a record in a sign of robust risk appetite.

The yen was steady after Japan’s consumer inflation slowed abruptly, with the Bank of Japan’s rate decision due later on Friday.

The upbeat mood in stocks reflected expectations for further rate cuts alongside an economy and jobs market that for now remain relatively resilient. Thursday’s data showed jobless claims dropped by the most in nearly four years, suggesting US companies are still holding onto workers.

“The Fed is cutting interest rates during a time when stocks are at record highs and the economy is still growing,” said Robert Schein at Blanke Schein Wealth Management. “This dynamic is bullish for stocks.”

Worries have been mounting for weeks that the S&P 500’s push to record after record risks becoming a bubble, with the index’s swollen valuation cited most often as a cause for concern.

Critics point to the tech sector’s outsize influence on this year’s gain, with just five stocks, all megacap tech firms, driving about half of the advance. But a closer look shows tech giants have largely justified their elevated valuations with profit growth.

“Investors have happily bought every dip, largely thanks to AI-driven enthusiasm and consistently strong results from big tech,” said Fawad Razaqzada at City Index and Forex.com. “The concern is that if tech momentum cools, the rest of the market may struggle to justify current valuations.”

That leaves the rally vulnerable if investor confidence wavers, putting the S&P 500 forecast on a more cautious stance, he noted.

“Our base case remains that the US economy will remain resilient and that it is unlikely to spiral into a recession,” said David Lefkowitz at UBS Global Wealth Management. “We therefore believe stocks are poised for further gains.”

On the BOJ, economists polled by Bloomberg anticipate the central bank will leave its target interest rate unchanged at 0.5%. BOJ watchers will be looking for clues as to the likelihood of a move next month or in December.

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