The Stock Market in Nine Scary Pictures

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Greed is driving the U.S. stock market to new highs. Fear will replace greed. I provide nine reasons to be fearful. If something cannot go on forever, it will end. The questions are not if but when, and how bad.

The Dow Jones Industrial Index reached 30,000 for the first time on November 23, 2020 and the Nasdaq and S&P 500 indexes both achieved new highs soon after.

This continuing rise in the face of a pandemic is crazy. Several explanations have been offered:

  • Fear of missing out (FOMO) is the greed explanation.
  • Hopium is the “drug” that leads investors to see beyond the pandemic to a perceived prosperous future.
  • Federal Reserve support is a godsend that will continue to fuel the stock market. Will the Fed buy stocks? What is its limit?
  • Low interest rates are beneficial to the stock market for a variety of reasons, not the least of which is that discounted future cash flows are higher. Also, it drives investors to take more risk in order to earn returns.