In what has to be the biggest news of the week (outside of Nvidia’s earnings, of course), Japan’s Nikkei 225 index eclipsed its record-high intraday mark on Thursday. This comes 34 years after it initially hit this level in 1989. And no, that is not a typo; it has actually been 34 years since the Nikkei reached this level during what is historically described as an asset bubble.
During the late 1980s, Japanese society was riding high. Asset prices and real estate valuations were soaring on the back of a monetary policy that was too loose. Six of the ten wealthiest people in the world were Japanese. There was a flurry of mergers and acquisitions and hundreds of millions of dollars worth of fine art purchases by the most affluent citizens.
Unfortunately, for many in that sphere, it was a short-lived experience. In an attempt to reign in the excess, the Bank of Japan began a monetary tightening process, raising rates. By the early 1990s, not only had the stock market dropped by over 50%, but real estate prices collapsed as well. This left many companies with bad loans and severe balance sheet issues. Combined with a rapidly slowing economy, it created over a decade of financial pain.
Fast forward to today, the Nikkei is up 17% this year, which makes it the world’s best-performing major index. And while there is a sense of nervousness, or that the last few years have seen “too much” of an increase, things are different than they were 34 years ago. The euphoria or achievement prevalent in 1989, when stocks soared, and property prices seemed unstoppable, has disappeared. Corporate earnings, which have nearly tripled since the bubble era, have provided a fundamental valuation level to the asset prices.
So, while there will undoubtedly be challenges ahead, whether from their aging demographics, the continued threat of deflation, or their massive debt load, cracking their all-time high is a great sign. And interestingly enough, it just could have been Nvidia that helped to break through the “iron coffin lid” (Tokyo stock traders used this term to refer to the previous high).
And why was it Nvidia that could have helped give them the final push? Well, Nvidia released earnings on Wednesday evening. By all accounts, it was a fantastic quarter, with sales and earnings crushing expectations, all while Nvidia guided higher for the next quarter. Given Nvidia’s current stature as the face of the A.I. mania, this drove a global pop in equity markets. And this just happened to coincide with the Nikkei’s final push on Thursday.
Economy
- Markets were mixed again this week, even after Nvidia’s blowout earnings with the S&P 500 up 1.7%, the Nasdaq up 1.4%, and the small-cap Russell 2000 down -1.4%.
- Initial Jobless Claims in the U.S. decreased to 201K in the week ending February 17 from 213K the previous week.
- Continuing Jobless Claims in the U.S. decreased to 1,862K in the week ending February 10 from 1,895K the previous week.
- S&P Global U.S. Manufacturing PMI rose to 51.5 in February from 50.7 in January, beating forecasts of 50.5. The reading pointed to the most substantial growth in the factory sector since September 2022.
- According to preliminary estimates, S&P Global U.S. Services PMI eased to 51.3 in February from 52.5 in the earlier month, missing market expectations of 52. While lower than January, the result pointed to 13 consecutive months of expansion in the U.S. private services sector.
Stocks
- U.S. equities were in positive territory. Consumer Staples and Materials were the top performers, while Energy and Real Estate lagged. Value stocks led growth stocks, and large caps beat small caps.
- International equities closed higher for the week. Developed markets fared better than emerging markets.
Bonds
- The 10-year Treasury bond yield decreased four basis points to 4.26% during the week.
- Global bond markets were in positive territory this week.
- High-yield bonds led for the week, followed by corporate bonds and government bonds.
