The market is disconnected from everything. Throughout history, there are correlations you would expect to hold constant between the market, consumer confidence, and the economy. Currently, after a decade of zero interest rate policy, massive amounts of liquidity, and financial supports, the market has become detached from reality.
Could the Fed trigger the next "financial crisis" as they begin to hike interest rates? Such is certainly a question worth asking as we look back at the Fed's history of previous monetary actions. Such was a topic I discussed in "Investors Push Risk Bets."
Charting the stock market “melt-up” in prices, and the Fed’s naivety of the laws of physics may be of benefit to younger investors. After more than a decade of rising prices, accelerating markets seem entirely normal, detached from underlying fundamentals. As a result, new acronyms like “TINA” and “BTFD” get developed to rationalize surging prices.
For months, investors have been scaling what feels like an endless wall of worry. Each concern that gets resolved seems to spawn new uncertainties, yet the market has continued its relentless climb higher.
We’ve lived this movie before. Last August, AAII bullish sentiment struck a 52-week high right before the Fed launched its September rate cutting cycle.
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