Next weekend, the bull market in US shares turns three. The S&P 500 dipped below 3,600 on 12 October 2022 as investors fretted about post-Covid inflation and rising interest rates. Last week, the US benchmark closed at 6,715, up nearly 90% over that three-year period.
Bull still running
After strong gains in 2023 and 2024, investors might have expected a slowdown or even a correction in 2025. Not least because the election of Donald Trump to the White House promised a change in trade policy and considerable political uncertainty.
Both of those duly arrived but investors have taken them in their stride. Far from derailing the bull market, the Trump policy agenda has given markets a new lease of life. Earnings growth, fiscal easing, the prospect of lower interest rates and a strong new artificial intelligence growth narrative have combined to create a powerful tailwind for markets this year.
Unsurprisingly, talk has turned to the echoes of 1999. The parallels are compelling - lower interest rates pouring fuel on a smouldering fire of economic growth and buoyant markets. But not everything is the same. Although markets have certainly become more speculative in nature, the eye-watering valuations of 1999 are notable for their absence. Shares are expensive relative to their recent history, especially in the US, but remain cheaper than they became during the dot.com bubble.
Broad-based rally
The stock market rally has broadened out to become very much a global affair. In the three months to September, China led the pack, with an 18% gain, driving emerging markets as a whole 11% higher. In the US, shares rose 8%, as did the UK market. Japan was nearly 12% better.
That built on gains during the first half of the year and mean that, year to date, shares around the world are enjoying a third consecutive year of strong gains. Europe, which had a storming start to the year was 31% up in the first nine months. UK shares were 20% higher to the end of September, and the US rose 15%. Japan was up 16% and China 18%.
The gold medal goes to…gold
But the best performing mainstream asset year to date has been the traditional safe haven of gold. Sometimes viewed as a diversifier for when other assets underperform, this time the precious metal is not just joining the party but leading the charge.
In the three months to September, gold rose by 17% while for the first nine months it delivered a return of 46% as it moves in on US$4,000 for the first time. Gold has been in favour as a perceived safe haven in the face of trade war, persistent inflation, worries about the independence of the Federal Reserve and a tumbling dollar.
Central banks have been buying for some time, as they look to diversify their assets away from the US currency. But more recently, other investors have jumped on the bandwagon as fear-of-missing-out kicks in. Having more than doubled in three years to a new high of US$3,930 an ounce, gold is the asset that everyone now wants to own. Inflows to gold-backed ETFs have exceeded US$60bn so far in 2025, a record for a calendar year already.
Land of the Rising Spend
Gold has competition for the market headlines this week, though. Japanese shares are in the spotlight after a surprise win for Sanae Takaichi in the race to be the next leader of Japan’s Liberal Democrat party. As such she is likely to be Japan’s first female prime minister, but that is not what investors are focused on.
Rather they are excited about the prospect of a period, as in the US, of loose fiscal policy and lower interest rates. The so-called ‘Takaichi bet’ this week sent exporters such as pharmaceutical companies, car makers, engineers and semiconductor businesses soaring as the Nikkei index rose nearly 5%.
Analysts are talking about a ‘multi-decade tailwind’ for defence, shipbuilding, nuclear power and cyber security as Japan becomes ever more aligned with the US in terms of economic and military security.
