Even after yesterday’s 2-1/2 percent drop, the S&P 500 is still higher than when I wrote
if the stock market is up on the basis of little or no positive economic news otherwise, then that sort of says that the reason people are buying stocks is because the market has been going up. That’s not what one would call a sustainable model.
The financial pages say that markets have realized that the Fed cannot keep monetizing large deficits forever. And this is news because…..?
I am one economist who makes a point of not giving an economic interpretation to stock market moves.
Bottom line is that the stock market has always been something of a horse betting parlor. The bet is that people will want the stock you bought after you bought it. It also temporarily violates the law of supply and demand. The more valuable the stock the less people are willing to sell it and vice versa. The only real investment is dividend income but with so many people playing the capital gains speculation game, there is really nothing that pays you for the risk of owing a stock.
the reason people are buying stocks is because the market has been going up.
That is close to my definition of a bubble.
If The Bernanke gives hints that his QE-forever may taper off in the near to near-ish term, then investment money may be expecting interest rates to begin to rise in consequence of that. So, the money that’s been chasing return in the stock market (because with the low-to-zero rates of the past 4-5 years there’s been nowhere else to find it), may be withdrawing in preparation for an investment environment of rising interest rates.
It’s a theory, anyhow.