QTR’s Fringe Finance: The Market Is A Time Bomb And Other Observations
Stocks went into a bear market in 2022. The size and severity of rising interest rates off of zero percent led to a massive reevaluation of asset values. However, despite that rise, markets have adapted quickly. And as the pace of interest rate hikes have slowed, investors have moved valuations higher.
That could pose a potential danger. Rising asset values at a time of high interest rates is more likely to lead to a sharp move lower rather than higher.
With markets moving nicely higher so far this year, most investors will likely fall prey to complacency. Stocks have moved blissfully higher. Besides rising interest rates, other issues such as U.S. debt hitting $31 trillion, and geopolitical instability could lead to a widespread market decline.
That doesn’t include the problems related to higher interest rates. Investors already saw the second and third largest bank failures in U.S. history this year. A few months later, however, that move now looks like little more than a speed bump.
The bond market continues to point to a recession in the coming months. The end of the first half of 2023 saw the Treasury yield curve at the most inverted ever.
Traders expect interest rate cuts by the end of the year. However, the Federal Reserve has also stated that they don’t see any rate cuts this year. And that two more hikes are ahead in the coming months.
These are signs that investors should be prepared for markets to move from complacency to uncertainty in the months ahead.