Take a look at the chart below.
The orange line is the South Korean market, the blue is the US S&P 500, and the red is Japan’s Nikkei 225.
Since January this year, all three have climbed steadily. Does this seem strange to you? Think about current events that should have affected all three markets.
Escalating tensions between the US and North Korea should be impacting markets. We’re talking about a potential war, with nuclear missiles flying everywhere. And yet, in all three nations, investors have ignored the threats, continuing to push markets higher.
Even the ASX, while it hasn’t gone up, hasn’t dipped over fears of a potential war.
Recent Nobel prize-winning economist Richard H Thaler is shocked to see stocks, particularly in the US, climb to such levels.
‘We seem to be living in the riskiest moment of our lives, and yet the stock market seems to be napping,’ Thaler said.
Thaler made a career from studying irrational and temptation-driven actions. For his contributions to behavioural economics, Thaler was awarded a Nobel prize just last week.
‘I don’t know about you, but I’m nervous, and it seems like when investors are nervous, they’re prone to being spooked,’ Thaler said. Even the unlikelihood of lower corporate taxes in the US isn’t making investors pull their foot off the pedal.
‘Nothing seems to spook the market,’ and if the gains are based on tax-reform expectations, ‘…surely investors should have lost confidence that that was going to happen.’
So where is this confidence coming from? Thaler, and many others, have no idea.
Despite that, the recent buying activity cannot continue forever. And when something drastic does happen — for example, if a war were to break out between the US and North Korea — markets would duly respond.
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Junior Analyst, Markets & Money