Setting new highs for four consecutive days! "Animal spirits" are dominating the global stock market

With the easing of inflationary pressures, resilient corporate earnings, and optimistic expectations for imminent interest rate cuts in the U.S., global stock markets are experiencing a strong rally driven by "animal spirits."

According to the latest data from LSEG, the MSCI World Index, which tracks the performance of over 2,500 global stocks, has set new records for four consecutive trading days. The S&P 500 Index closed at a historical high for the second consecutive day on Wednesday, while Japan's Nikkei 225 Index, South Korea's Composite Index, and Singapore's Straits Times Index all reached record highs this week.

PPI Decline Ignites Rate Cut Expectations

The latest catalyst for the stock market comes from weak U.S. PPI data. The U.S. Producer Price Index (PPI) for August, released on Wednesday, unexpectedly fell by 0.1% month-on-month, significantly lower than the 0.3% increase expected by economists surveyed by Dow Jones.

This data indicates that inflationary pressures are easing, further boosting market expectations for the Federal Reserve to loosen monetary policy. José Torres, a senior economist at Interactive Brokers, stated:

The stock market is setting new records, because the far weaker-than-expected PPI data indicates deflation rather than the anticipated inflation. Animal spirits are soaring as this highly anticipated data increases the probability of the Fed cutting rates at each of its last three meetings in 2025.

According to CME Group's FedWatch tool, the market estimates a roughly 92% probability of a 25 basis point rate cut at the meeting on September 17. Eddy Loh, head of investment strategy at Malayan Banking, expects two rate cuts this year, with the September cut being "almost certain."

Marvin Loh, a senior global macro strategist at State Street Bank, believes that as the economic foundation remains quite solid, the rationale for the Fed to restart its rate-cutting cycle is becoming increasingly compelling, creating an environment that "is a tonic for risk investors."

Corporate Earnings Provide Another Support

In addition to macro factors, robust corporate fundamentals also provide a solid foundation for the stock market's rise. Eddy Loh stated:

The market's resilience has exceeded our expectations. The performance year-to-date is indeed built on still very strong economic growth, and more importantly, corporate earnings. This is supporting returns in global stock markets—not just in the U.S., but also in major markets in Europe, Japan, and Asia (excluding Japan).

The outstanding performance of tech giant Oracle is a prime example.

After the company released a highly optimistic outlook regarding AI-related revenues, its stock price soared to a historical high on Wednesday, adding $244 billion to its market capitalization in a single day, marking the best single-day performance since 1992. José Torres believes this performance has bolstered market confidence that the rally led by tech stocks still has momentum.

Sentiment Reversal but Risks Remain

This round of gains marks a rapid reversal in market sentiment. Analysts point out that earlier this year, the market was still generally overshadowed by concerns over sticky inflation, geopolitical risks, and U.S. tariff policies. Now, optimism has clearly taken the lead.

Despite the market's exuberance, some analysts have also issued cautious warnings. Investors are currently closely watching the upcoming U.S. Consumer Price Index (CPI) announcement. José Torres stated, if the CPI data also shows an unexpected decline, it would constitute a "triple benefit"—combined with the previous employment benchmark revision and weak PPI—this would provide justification for the Federal Reserve to implement larger rate cuts and could potentially drive the stock market to new highs.

However, Eddy Loh from Malayan Banking cautions investors to be aware of potential risks. He noted that the market will see "more pronounced" effects of U.S. tariff policies in the coming months, as these policies only took effect in August, which may lead to a certain degree of cooling in market sentiment