Stock Exchange | At the beginning of the year, the shares rose to a five-year record – Is there still a chance for a continuation?

Stocks in different parts of the world have strengthened during the beginning of the year more than in five years.

One of the key reasons for the increase is the expectation that many central banks will start cutting their key interest rates in the summer due to the slowdown in inflation. The rise in shares is also explained by artificial intelligence.

Next, the stock market is tense about the results season starting in April.

“The shares have risen so much at the beginning of the year that the rates may develop more calmly in the near future. The profit outlook for companies, especially in the United States, is positive and the earnings period may bring surprises, which is why the shares start to rise clearly again”, says the chief asset management strategist of the financial company Nordea Antti Saari.

The big ones and the MSCI index, which measures the development of shares of medium-sized companies in 23 countries, has strengthened by 7.7 percent at the beginning of the year. It is more than once since January–March 2019.

Instead, the general index of the Helsinki Stock Exchange has weakened by more than four percent this year, while the European Stoxx Europe 600 index has strengthened by seven percent in the same period.

A large part of the companies on the Helsinki Stock Exchange operate in industry, whose prospects are overshadowed by the slow economic growth of the euro area. 40 percent of the value of Finland's goods exports goes to the euro area.

The European Central Bank predicts that the euro area economy will grow by 0.6 percent this year, after it grew by 0.5 percent last year.

In the United States, the economy is clearly stronger.

Last year's gross domestic product grew by 2.5 percent based on preliminary data, and the International Monetary Fund (IMF) predicts that it will grow by 2.1 percent this year.

Also senior strategist at financial company Danske Bank Kaisa Kivipelto believes that the share price will continue.

“Economic growth has been surprisingly strong at the beginning of the year, especially in the United States and Japan, which is why we believe the rise in the stock market will continue. If economic growth in Europe were to start to recover soon, it would probably also be reflected in the Helsinki stock exchange.”

In the overall picture, the slowdown in inflation is a significant reason for the brightening of the economic outlook, as it enables central banks to cut interest rates.

When interest rates are high, economic growth slows down because the financing costs of households and companies increase. This in turn reduces consumption and investments.

In the euro area, the inflation rate slowed to 2.6 percent in February. A year earlier it was 8.5 percent.

In the United States, too, inflation has slowed considerably, although it accelerated to 3.2 percent in February from 3.1 percent in January.