The Daily Prophet: The Everything-Is-Awesome Rally Gains Steam

The naysayers warning that investors pushing stocks to new heights are too complacent were nowhere to be found on Tuesday, as equities set fresh records on good news all around. Not even President Donald Trump tweeting that a U.S. government shutdown next month may be unavoidable or reports of North Korea launching another ballistic missile could keep the S&P 500 Index from posting one of its best days of the year, the Bloomberg Dollar Spot Index from appreciating for a second straight day and junk bonds from strengthening.

Instead, investors took their cue from what appears to be steady progress on tax reform in Washington, soaring consumer confidence and some market-friendly comments by Federal Reserve Chair nominee Jerome Powell in his Senate confirmation hearing. The good news started before most investors even got out of bed, as the Paris-based Organization for Economic Cooperation and Development predicted the global economy will expand 3.7 percent in 2018, which would be its best performance in years. Then, the Conference Board's U.S. consumer confidence index unexpectedly improved in November to a new 17-year high. Powell's comment that financial rules are “tough enough” only added to the good vibes. What was there not to like?

That's not to say there weren't some scraps for the bears to feed on. In making its prediction for growth in 2018, the OECD also said asset prices have gotten too high for a global economy that is set to peak next year. Also, Bloomberg News' Steve Matthews reports that a survey of economists by the University of Chicago’s Booth School of Business -- a poll that includes Republicans, Democrats and independents -- found just one of 38 respondents agreed that, a decade from now, GDP would be substantially higher from tax cuts than under the status quo; 39 percent were uncertain and 58 percent disagreed.

EMERGING MARKETS GET A FRESH BOOST
As well as U.S. stocks have done this year, emerging-market shares have done even better. And investors who correctly made bullish calls on the equities amid this year’s monster rally say there's no reason to pull out now. Wagering that economic growth will continue to propel gains in 2018 even though the MSCI EM Index has jumped 33 percent this year already, money managers and strategists from firms including Goldman Sachs, Ashmore Group, JPMorgan and BNP Paribas Asset Management say valuations are at reasonable levels, according to Bloomberg News' Aline Oyamada. In essence, they are betting that forecasts for a second year of economic expansion near 5 percent should continue boost earnings. "The strong move will continue, as the improvement cycle is just beginning,” Edward Evans, a money manager at Ashmore who helps oversee almost $59 billion, told Bloomberg News. His main overweight positions are in China, where he favors banks and e-commerce companies, and in Brazil, where he likes energy and materials producers. Evans says another double-digit gain in share prices on average can be expected in 2018. The price-to-forecast-earnings ratio has climbed to 14.1 from 13.5 at the start of the year, above the 11.6 historical average, Oyamada reports.