Can Anything Stop The Stock Market?
XM Group | Nov 26, 2021 09:05AM ET
Rocket fuel
There’s a clear sense of euphoria driving this bull market. Asset prices seem almost immune to bad news, every dip is a new opportunity to buy, and momentum is king. Take covid news. Fears of a new vaccine-resistant variant dragged US markets lower today, but the losses were not dramatic.
The real question is, what could propel real yields higher? The answer may be ‘peak inflation’. With inflation roaring higher lately, investors are buying inflation-protected bonds in truckloads. This demand is keeping ‘real’ yields pinned on the floor. But once we see the first signs that inflation has actually peaked, this dynamic could change.
Ultimately, there’s nothing else
Now to be clear, all this argues for a correction, not a crash. Markets simply seem to have run too far ahead of fundamentals, projecting forward the favorable conditions that have dominated so far. But things are changing, especially on the policy front.
In the longer run, stock markets tend to follow the economy, which is healing quickly. Cheap money from central banks certainly helps a lot, but as the 2015-2019 experience showed, equities can flourish even with rising rates and fading liquidity.
After all, what else is there? Central banks have killed bonds as an asset class, while commodity and crypto markets are too small and volatile for ‘big money’. A correction may be overdue, but ultimately there’s just no alternative to stocks.
Get The News You Want
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.