Stock markets across the world's largest economies are reaching new highs. Among the G7 countries, only Italy's market is not in record territory. Even Japan, which appeared to be in terminal decline after its 1990 crash, is now close to its long-ago highs.
Markets climb despite risks
The rally comes as investors bet on continued economic growth and corporate profits. Technology stocks have led the gains, fueled by enthusiasm around artificial intelligence and automation. Central banks in several major economies have signaled they are done raising interest rates, providing further support for equity markets.
However, some analysts warn that stock prices are disconnected from underlying economic reality. The strong market performance masks risks including high government debt levels, geopolitical tensions, and supply chain disruptions.
Strait of Hormuz disruption weighs on energy markets
Iran continues to maintain its chokehold on the Strait of Hormuz, disrupting global energy supplies. About a fifth of all oil and natural gas traded worldwide once passed through the narrow mouth of the Persian Gulf. A trickle of ships have made it out of the strait, but pressure continues on global energy prices.
The disruption extends beyond oil and gas. The Gulf region produces 30% of globally traded chemical fertilizers, and the blockade has led to fears of food shortages in importing nations.
Federal Reserve and central banks in focus
Investors are closely watching the Federal Reserve and other central banks for guidance on monetary policy. While inflation has moderated from its peaks, it remains above target levels in many economies. Traders are pricing in potential rate cuts later this year, which could provide further fuel for the rally.