Share prices in the US and Europe have reached their highest levels since the start of the pandemic as optimism grows that Joe Biden’s $1.9tn stimulus package can reflate a battered global economy without triggering a surge in inflation.
Demand for US tech stocks sent the Dow Jones Industrial Average above the 32,000 level for a brief period while the Stoxx 600, a key index of European shares, closed at its highest level since late February last year.
The financial markets’ upbeat mood was reflected in a jump of more than 27% in the US computer game retailer GameStop to $246.90. The shares soared to nearly $400 earlier this year when small investors banded together to take on hedge funds that had been hoping to cash in on the share price falling.
The shares subsequently fell back to around $40, but have rallied over the past week after the company announced plans to move online. The move will be led by a major shareholder Ryan Cohen, the co-founder of an online pet product business.
Cohen took a big stake in GameStop last year when the shares were between $6 and $18, and has been pushing to move away from its traditional bricks-and-mortar business model to become a technology-driven business focused on gaming and digital experiences.
US markets were generally stronger on optimism that some of the money that will be sent directly to US households as part of the Biden stimulus plan will be invested in the stock market. All the US markets closed higher with renewed appetite for tech stocks pushing the Nasdaq up highest at 3.7% with Tesla, which has suffered big losses this year, one of the biggest gainers rising 19.6%.
Bitcoin was on course for a fifth day of gains at just over $54,000, and some analysts predicted it would hit a record $60,000 by the end of the week.
London’s main share price index, the FTSE 100, closed 11 points higher at 6,730, its highest level in three weeks but still well below its level in early 2020 before the arrival of Covid-19.
The rally in US technology firms came as US government bond prices strengthened, pushing down yields which had risen as investors had anticipated higher inflation and the risk that interest rates might rise sooner than expected.
Fawad Razaqzada, an analyst with ThinkMarkets, said it could be the “calm before the storm”, and noted that concerns over the high valuations of tech firms had been coming to the surface in recent weeks.
““Obviously I don’t have a crystal ball, but I am not too sure that US stocks will be able to maintain their pace,” he said.
“Granted, markets can overshoot amid euphoria, but ultimately if concerns about tighter monetary conditions intensify, then yield-seeking investors might be attracted to the ‘safer’ returns on the bond markets instead of stocks, as yields continue to rise.”