Strange things have been happening in the world economy and financial markets this week. While that sentence could be written almost any time in the past five years, since the outbreak of the global financial crisis, the strangeness this week has taken a particular form that reveals more than it confuses.
Two months ago, when Wall Street first approached a record high, I warned about the dangers of “stock market vertigo” – a condition that combines the fear of buying shares at unsustainably high prices with the equal dread of not buying shares at prices that will never again be on offer if the market soars to permanently higher levels.
This is a critical week for the world economy and financial markets, especially in the United States. Friday’s U.S. employment report will signal either a renewal of the economic recovery or, much more likely, will confirm that the economy is sinking into another seasonal “soft patch” for the fourth time in four years. Despite this risk, stock prices on Wall Street are at record highs, suggesting that equity investors see this slowdown as nothing more than a temporary obstruction on the way to a sustained recovery, just as in the summers of 2010, 2011 and 2012. So should we prepare for more anxiety about a double-dip recession, or can we feel confident that this summer will be followed by an autumn of strong recovery, as in the past four years?