Shares rally still has legs

POLITICIANS may stumble but financial markets canter on. Yesterday saw US shares not just at record levels, but the S&P 500 having its longest upward run since 2013.

The Dow is nearly 25pc higher than it was when Donald Trump was elected – not something the East Coast US elite had imagined might happen.

Other major markets are also at or close to all-time highs. Even in the UK, despite the relentless negative comment about Brexit and the wobbly performance of our Prime Minister, the FTSE 100 is only a little over 1pc off its peak.

Sure, that is thanks in part to the decline of sterling, but the pound has now recovered about one-third of its post-Brexit vote fall. What could possibly go wrong?

Well, people with long memories may recall that we are just two weeks off the 30th anniversary of Black Monday. On October 19, 1987, the Dow Jones plunged 22pc, the largest one-day drop ever, while London had falls of 10pc on both the Monday and the Tuesday. Some other markets did even worse: by the end of October, Australian shares were down 42pc and Hong Kong 46pc.

Historical parallels never fit exactly, and there are plenty of reasons why the present situation looks more secure than that of 30 years ago. In 1987 there had been a huge boom in US share prices in the preceding months – they were up 44pc at the August peak from the start of the year. More important, it was the early days of program trading, and the pace of selling was bumped up by computers reacting to each decline by trying to sell yet more stock. Since then, various measures have been taken to protect markets from computer-driven panics.

Besides, investors have come to realise that sudden crashes usually reverse themselves quickly and see such falls as buying opportunities. After all, shares fell by 10pc in both August 2015 and January 2016, but then recovered and reached new highs shortly afterwards. So it is comforting to think that both market systems and investor sentiment are more robust than they were 30 years ago.

The fact that the world economy is pushing its way through political uncertainty is a further comfort.

Intuitively it feels as though the momentum will carry things on for a while yet. This is not just an American thing or a European thing. It is a global phenomenon, and it has legs. But of course it is at that moment when everyone gets over- exuberant that the wise start to worry.

Ben Bernanke, former head of the Federal Reserve, observed: ‘History proves… a smart central bank can protect the economy and the financial sector from the nastier side effects from a stock market collapse.’ True, but it can’t stop the collapse happening.

Bumpy road

CAR sales are always a great indicator of the state of an economy.

A car is the most expensive consumer item we buy, and overall is the biggest thing we spend our money on aside from a house and perhaps a pension plan. So the plunge this year, with sales now down 9.3pc on a year ago, needs to be taken seriously. Politicians anxious to say that Brexit is harming the economy were quick to note that this was another sign of it hitting people’s pockets. But is that true?

There are two reasons why this year cars are a special case. One is the rise in road tax brought in from April. Private buyers rushed to get in ahead. The first three months of the year saw 820,016 vehicles registered, a record, so some fall-off was to be expected – and politicians then were not saying it was confidence about Brexit, were they?

The other is the diesel scandal, and the possibility of electric and hybrid models round the corner. You certainly don’t want to buy a diesel now, and why in any case buy a new car when there might be something radically better on the market next year?

Rabbit, rabbit, rabbit

IN CASE you didn’t notice, Google demonstrated headphones that are linked to its translation services, so that someone can speak to you in one language and you can hear in one you understand.

It is not entirely new but Google seems to have put the technologies together in a more credible way than anyone else.

Or at least so it seemed, for in the demo the kit managed to translate between Swedish and English. Next test: try it on Cockney rhyming slang...