STOCK markets in Britain and the US have once again hit record highs
this week, but experts have warned this could be the calm before a
crushing storm.
Britain's FTSE 100 has now rocketed by a whopping 20 per cent over the last year, hitting new top levels of 7,598 again today.
At the same time, America's Dow Jones, S&P500 and Nasdaq have seen large gains and hit fresh records this week.
But there are signs that these highs could be about to be reversed.
1. Summer
Stock
markets tend to be more volatile in the summer months in part due to
lower volume levels, which can mean losses for investors.
June
is worst month for returns from the UK FTSE-All Share market, and is the
only month of the year to see more losses than gains over the last 30
years, according to analysis by Hargreaves Lansdown.
The average return in June is -0.7 per cent with investors only seeing a profit 43 per cent of the time.
2. US is raising interest rates
Another factor that could take the wind out of stocks are rising interest rates in the US.
Globally low interest rates since the financial crisis have helped boost stock markets.
But the US Federal Reserve has started increasing interest rates amid higher inflation and a stronger economy.
And
other central banks including the Bank of England and the European
Central Bank could also start to move towards raising rates, which could
knock stocks.
Fawad Razaqzada, market analyst at Forex.com,
said: "Up until now interest rates had been falling, which made
higher-yielding equities the obvious choice for investment, along with
property.
"Now that the Fed has started to tighten its policy, the impact of low interest rates are diminishing.
"In
the event central banks overcook global inflation with their still
extra-ordinary loose policy stances, they may be forced to raise
interest rates a lot quicker than would otherwise be the case.
"This
in turn will rapidly increase borrowing costs for consumers and
businesses, which could hurt profits and share prices in some sectors of
the economy."
3. Valuations and technicals
A number of stocks
in the US are thought to be overvalued - and it is just a few, mainly
tech stocks, that are keeping momentum upwards.
Mr Razaqzada
added: "A growing number of S&P 500 stocks are below their 200-day
moving averages as the index charges forward into unchartered
territories.
"This suggests that the markets are held up by only a handful of winning stocks.
"Once cracks start to appear in the leaders, things could unravel really quickly."
He added: "At the moment the bulls are in full control, but there is a danger that the tide will soon turn."
