Four consecutive days of record highs! "Animal spirits" are dominating global stock markets.

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Driven by easing inflationary pressures, resilient corporate earnings, and optimistic expectations of an impending rate cut in the US, global stock markets are experiencing a strong rally fueled by “animal spirits.”

According to the latest data from LSEG, the MSCI World Index, which tracks the performance of over 2,500 stocks worldwide, has hit record highs for four consecutive trading days. The S&P 500 closed at an all-time high for the second straight day on Wednesday, and Japan’s Nikkei 225, South Korea’s KOSPI, and Singapore’s Straits Times Index all reached new highs this week.

PPI Decline Ignites Rate Cut Expectations

The latest catalyst for the rally came from a weak US PPI report. The US Producer Price Index (PPI) for August, released Wednesday, unexpectedly dropped 0.1% month-on-month, far below the 0.3% increase forecasted by Dow Jones surveyed economists.

This data indicates that inflationary pressures are easing, further boosting market expectations for a possible Fed monetary policy easing. José Torres, Senior Economist at Interactive Brokers, said:

The stock market is reaching new highs, because the much weaker-than-expected PPI shows deflation instead of the expected inflation. Animal spirits are soaring because this much-welcomed data increases the likelihood that the Fed will cut rates at each of its last three meetings in 2025.

According to CME Group’s FedWatch tool, the probability of a 25 basis point rate cut at the September 17 meeting is about 92%. Eddy Loh, Head of Investment Strategy at Maybank, expects two rate cuts this year, with a September cut “almost certain.”

Marvin Loh, Senior Global Macro Strategist at State Street Bank, believes that, with the economic fundamentals still quite solid, the rationale for the Fed to restart its rate-cutting cycle is growing stronger, and this environment is “a tonic for risk investors.”

Corporate Earnings Provide Additional Support

Beyond macro factors, robust corporate fundamentals have also provided a solid foundation for the stock market rally. Eddy Loh, Head of Investment Strategy at Maybank, said:

The market’s resilience has exceeded our expectations. This year’s performance is indeed built on still very strong economic growth and, more importantly, corporate earnings. This is supporting equity returns globally—not only in the US, but also in major markets in Europe, Japan, and Asia (excluding Japan).

The exceptional performance of tech giant Oracle is a case in point.

After the company released a bullish outlook on AI-related revenues, its stock price soared to a historic high on Wednesday, with its market value jumping $244 billion in a single day—the best one-day performance since 1992. José Torres believes this strengthens confidence that the tech-led rally still has momentum.

Sentiment Reversal but Risks Remain

This rally marks a rapid reversal in market sentiment. Analysts point out that earlier this year, the market was broadly shrouded in concerns about sticky inflation, geopolitical risks, and US tariff policy. Now, optimism dominates.

Although the market is booming, some analysts are also sounding notes of caution. Investors are now closely watching the upcoming US Consumer Price Index (CPI) report. José Torres said, if the CPI data also shows an unexpected decrease, it would be a “triple positive”—alongside the previous labor benchmark revision and the weak PPI—which would provide grounds for the Fed to cut rates more significantly and could propel the stock market to new highs.

However, Eddy Loh of Maybank reminds investors to pay attention to potential risks. He stated that the market will see “more obvious” effects of US tariff policy in the coming months, as these policies only took effect in August and may lead to a certain degree of cooling in market sentiment.

Risk Warning and DisclaimerThe market has risks, and investment requires caution. This article does not constitute personal investment advice and does not take into account individual users’ special investment objectives, financial situation, or needs. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Investments made accordingly are at their own risk. ```