In the wake of the global stock market boom, the Amsterdam AEX index has pulled its old record out of the books. It took nearly 21 years to rise from the September 2000 mark. At that time, the world was under the influence of the dotcom bubble, the rise of the Internet and its new business. Now there is a global pandemic causing a similar global recession.
The fact that the indicator has taken so long partly depends on the configuration has changed a lot since then. Stock market benchmarks in Frankfurt and New York, for example, are two times higher than they were at the time, and those in France have nowhere near the level they were twenty years ago. But all of them have risen particularly sharply in the past year.
The high valuation of Dutch stocks and other stocks shows a number of things. First of all, this indicates that investors are optimistic about the near future. Corona is over, the virus will lose a vaccine, and nothing stands in the way of a thriving economy. This portion of the prices can still be reasoned and gives hope that today’s stock market prices will partially translate into a recovery for the real economy.
In response to the pandemic and lockdowns that have crippled economies everywhere, governments and central banks have done their best to ease the pain. Business support packages, income support, very low interest rates and aid to governments pumping billions into their economies are creating a tidal wave of money flowing around the world.
The United States is doing much more than Europe. After implementing the stimulus package in December, and still in President Trump’s final months, Congress approved a bigger package from incoming president Joe Biden two weeks ago: $ 1900 billion. Now, on top of that, there is an increase in investment of another 2,000 billion that will be spread over a longer period of time.
In Europe, there is talk of a 750 billion euro anti-Corona aid package, despite the budget efforts already being made by member states. And then, in both blocs, there are also savings that have accumulated among the citizens during the Corona crisis, and part of them finds their way into the stock markets. All this explains a great deal of exuberance: the financial sector is making great progress in the future. In this sense, the rapid rise of the so-called SPAC is also special: these empty sleeves, which are subsequently filled with acquisitions, are a symbol of the blind belief that everything will go well.
More recently, comparisons have been made with the situation in the financial markets during the dotcom boom of the late 1990s, or a precursor to the 2008 financial crisis. There is little meaning to be said about it, other than profits, which are now private and will soon serve as a buffer for any losses. . After 2008, society turned to the chaos of the financial crisis, because it is difficult to do it otherwise. This repetition is extremely undesirable.
Soap bubbles are difficult to recognize. So far, the dream in financial markets greatly predates the reality in the everyday economy. These two will inevitably meet again in the future – and hopefully in a nice way.
A copy of this article also appeared in NRC on the morning of April 2, 2021