The US S&P 500 stock index briefly broke through the psychologically-important 2000-point level on Monday, marking yet another milestone in an almost uninterrupted five-year bull run.
Coming less than two months after the Dow Jones Industrial Average passed the 17,000 mark for the first time, this week's breakthrough appears to confirm that the US recovery from the wreck of the global financial crisis is sustainable and reflects improving corporate health.
The S&P has risen 195 per cent from its closing low in 2009, while the Dow is up 161 per cent and the tech-heavy Nasdaq up 260 per cent. In the same period, the unemployment rate has fallen from a high of 10 per cent in December 2009 to a low of 6.1 per cent in June this year.
Extreme monetary easing by the Federal Reserve has helped fuel the recovery and the steady rise in financial asset values, but talk of an equity bubble are overdone, according to some experts.
"The reason that the US has been so strong is that the market rally over the last three years – and pretty much over the last five years – has been to a large extent backed up by corporate earnings growth," Perpetual Investments head of market research Matt Sherwood said.
"The US corporate sector has been very strong; the US economy is now improving; you have an ultra-accommodative central bank, which is going to remain very accommodative; you have valuations at historic averages, so they're not stretched; and you'll have continued support from capital management decisions and buyback programs."
The US markets' latest surge followed signals from European Central Bank president Mario Draghi about possible quantitative easing in the eurozone.
Unlike the US, Europe's recuperation from the ravages of the financial crisis has been patchy at best. High unemployment, weak lending and, more recently, an economic sanctions stand-off with Russia are holding back real economy growth.
However, this gloomy picture provides a buying opportunity for global equity investors, some equity strategists say.
The Credit Suisse private banking and wealth management chief investment strategist, David McDonald, says although the US rally still has legs, the "catch-up" story for European corporations is more compelling.
"We see the S&P getting to 2100 in the next year, but we see a lot more upside out of Europe," he said.
He said any quantitative easing by the ECB, talk of which triggered a rally in European stocks on Monday as short bond yields turned negative, should inject more liquidity into equity markets while providing a much-needed boost to struggling households and businesses.
The US Fed's quantitative easing program is widely credited with providing the original fuel for the US equities rally before business consolidation and cost-cutting kicked in to lift corporate performance.
Many believe the US rally is now driven just as much by business fundamentals and merger and acquisition activity as by the walls of money hunting yield.
Apart from Mr Draghi's comments, Monday's surge was spurred by a fresh round of merger and acquisition activity. Burger King Worldwide announced it was in talks to combine with Tim Hortons and move its headquarters to Canada, and Switzerland's Roche Holding agreed to pay US$8.3 billion ($8.9 billion) for US biotech company InterMune.
"We do think [the US rally] is justified," Mr McDonald said. "The earnings season was definitely a good one in the US, and the macro picture seems to have continued to improve.
However, there are limits to how high the market can go, he said. "That all provides a solid background. But we don't expect a lot more out of the US market."
Suncorp market analyst Darryl Conroy agrees, and says US shares are not the only asset class looking fully valued at the moment.
"Globally, stocks are getting frothy, as are bond markets and housing markets," he said. "I'm not sure the US stock market will be as sexy as it has been looking ahead."
Others say current valuations are fair, with upside still evident in a range of industries and sectors, including energy, healthcare, telecommunications and information technology.
"We've got manufacturing doing well, the housing market continues to recover, monthly numbers are positive, there's very strong growth in IT and tech and innovation that's adding to productivity and to the US becoming self-sufficient in energy," Macquarie Wealth Management's divisional director Martin Lakos said.
He sees the US sharemarket looking strong for the next 18 months, although there will be dips along the way.
"It's not a hockey stick going straight up," he said.
