Stocks slip off record highs ahead of earnings, US data
Global stock markets fell from record highs on Monday as investors waited to see whether US earnings would justify sky-high valuations, while a rally in bonds could be tested by what should be strong readings for US inflation and retail sales this week.
MSCI’s All Country World Index, which tracks stocks across 49 countries, was down 0.14 percent after the start of European trading, off Friday’s record high. The gauge’s price-to-earnings ratio is at its highest level since early 2010. Stocks hit record highs across the world last week on optimism that vaccination programs and the easing of lockdowns to combat COVID-19 would bode well for an economic rebound. Total market capitalization of global equities hit $90 trillion last week, according to Refinitiv data.
Morgan Stanley noted that despite the S&P 500 making all-time highs, small-cap stocks represented by the Russell 2000 small-cap index have underperformed the S&P 500 by 8 percent since peaking on March 12.
“In my view, the breakdown of small caps and cyclicals is a potential early warning sign that the actual reopening of the economy will be more difficult than dreaming about it,” said Michael Wilson, the bank’s chief US equity strategist.
“Small caps and cyclicals have been stellar outperformers over the past year. In essence, they were discounting the recovery and reopening that we are about to experience. However, now we must actually do it and with that comes execution risk and potential surprises that aren’t priced.”