May 2, 2016
Modern business is so complex. Back in the day, things like economic fundamentals drove the market. If a company produced a profit, generally the stock went up.
Today, not so much.
And the reason has to be the complexity of our modern business world…right? I mean, how else can there be such a sharp disconnect between the booming market and the real economy?
Our modern economy may well be hugely complex, but what’s happening with the markets now is just downright bizarre.
Still, in the face of stagnant growth and four straight quarters of negative S&P 500 comparisons, major stock indexes have largely recovered from The Great Recession.
Why? Two things pop out.
First, central bankers are enabling market traction with their policies. Investors know the Fed and others will save the day, so they have no fear of downside risk.
And that leads to the second phenomenon – price momentum. Asset prices are heavily inflated, yet investors fear if they aren’t chasing them, they’re falling behind.
And at the end of the day, the bullish crowd is right because the returns are there. But with the fundamentals telling a wholly different story, we must realize that the party won’t last forever.