As surprising as it may seem, the US stock market has hit a new all time high, against a backdrop of a creaking economy, an over extended housing market and the lowest levels of savings per member of the population for a long time.  So what really is driving the markets, and why?

There are a number of factors which are currently driving the markets which include :-

Corporate Activity

The US corporate sector is currently going through a period of major reorganisation, with many companies becoming the subject of takeover approaches or merger offers.  This has led to a highly speculative attitude from investors, who are determined not to miss out on the “next big deal”.  As price valuations get pushed to the limit, there are many investors who will suffer large losses in due course. 

If each corporate rumour where to occur, we would be seeing takeover and mergers everyday for the next year, and this is just not possible.  As some stage there will be a realisation that share valuations are being pushed to the limit, and it is just not viable for many to be valued so highly.

Feel Good Factor

Many American citizens have seen a major increase in the value of their properties over the last few years, with more and more “releasing equity” from their homes to further extend their investment portfolios.  This has led to a rush of new money into the market, which has squeezed prices higher and higher, with echoes of the 1987 crash - over exuberance and irrational investor behaviour.

Conclusion

There are now real concerns that the market is being primed for a major fall at some stage in the not too distant future.  Recent figures from the economy showed that retail spending fell sharply last month, a move which was discounted by many still chasing the next big takeover.  US average debt is growing, savings rates are at there lowest for some time and many home owners are struggling to cover their rising mortgage payments -  a recipe for success?