Stock Markets Continue to Reach RecordsPaul-Martin Foss
Stock markets continued to reach record levels on Friday as investor sentiment was buoyed by reports that tax reform proposals had passed their first hurdle in the Senate. Investors also were cheered by reports that President Trump is leaning towards picking Federal Reserve Board Governor Jerome Powell as the next Chairman of the Fed’s Board of Governors. Markets undoubtedly hope that Powell will continue the easy money policies that were enacted by Ben Bernanke and Janet Yellen. More easy money would mean more cheap money for Wall Street to play with, which would keep the stock rally going for a while, or so they hope.
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The level of stock market growth over the past 20 months is nearing 50%, an incredible amount that has no correlation to the overall strength and health of the economy. It’s clear that stock markets are in a bubble, but just when will the bubble crash? With the Fed promising to wind down its balance sheet and continue raising interest rates, it’s only a matter of time before the crash comes. Even with a new chairman who may be dovish at heart, the Fed can prop things up only so long before economic reality rears its head.
Investors who think that stocks will keep gaining forever will be sorely disappointed when markets crash back to earth. During the last financial crisis, stock markets lost more than half their value, and the next financial crisis may be even worse. That’s why it’s imperative that investors take steps now to protect their assets and ensure that they won’t be wiped out when the crisis hits. Better to miss out on some gains now than to risk rolling the dice and not getting out of overheated stock markets before they collapse.