Why the $9 trillion stock rally is beginning to look tired

By Adam Haigh and Cormac Mullen

With more than $9 trillion restored to global stock markets in less than two months, investors are questioning if the rally has more legs.

“Prices may have come too far, too fast,” said Bob Doll, senior portfolio manager at Nuveen, which has about $930 billion in assets under management. “Markets could be due for consolidation or a pullback.”

Technicals show a mixed picture around the world. Momentum indicators hint at overbought levels in Europe and the US, though are less of a worry in developing countries. Market breadth looks strong in America, though the fading outperformance of cyclical shares is an early sign of concern.

Here’s a selection of indicators traders are looking at across the globe.

Asia
Asian shares have rebounded about 12 per cent since their Christmas lows and are nearing technical resistance, which may limit gains for now. The MSCI Asia Pacific Index has risen to its key 200-day moving average, but hasn’t broken through it. The gauge is also at its upper Bollinger band, which is often seen as a sign a rally is extended.

Europe
European shares have gone one better. The Stoxx Europe 600 Index closed above its 200-day mean on Wednesday for the first time since October. Still, its relative strength index -- a gauge of price momentum -- is flirting with overbought levels. While not always a reliable predictor for market turns, the last time the reading was this high, in May, the benchmark slipped into a downturn that persisted for the remainder of the year.

US
Broad participation in the US rally is keeping bulls content for now, having augured well for stocks in the past. At Friday’s close, more than 90 per cent of the S&P 500 Index members traded above their average prices over the past 50 days, the highest proportion since early 2016. So, many stocks have risen over the past two months that the NYSE cumulative advance-decline line has reached a fresh record, even though the gauge itself is still below its peak.

Still, bears can point to a number of indicators that suggest the rebound is perhaps overdone. For example, cyclical shares that drove gains in US equities since Christmas lows, are starting to lose their edge relative to their defensive peers.

Emerging Markets
Despite surpassing the US dollar as the most “crowded” trade in Bank of America Merrill Lynch’s recent survey of global fund managers, euphoria towards emerging-market shares has cooled a tad. The MSCI Emerging Market Index’s relative strength index has fallen below early February’s overbought levels, and the gauge remains within its upper and lower Bollinger bands, indicating no imminent sign of a pullback.