Even if the speech was a warning, stocks sank 4% in 10 days then rose to record highs in six weeks. ING's Chris Turner remarked this week that the S&P500 doubled over the next three years, peaking in 2000 during the dotcom boom, after that speech. The index recovered from the crash and three-year bear market in seven years.
Recently, financial analysts have called Powell and team's predicament "exuberance" after Greenspan. Like 1991-1996, the S&P500 doubled in five years and almost tripled in 10.
Last month, Atlanta Fed president Raphael Bostic warned that "pent-up exuberance" could raise inflation and resisted rate cuts. Post-pandemic Fed rate hikes and higher long-term borrowing costs have slowed the economy and tightened the bond market since January, but the stock market bubble is loosening financial conditions again.
Goldman Sachs' index on U.S. financial conditions fell to its lowest level since August 2022 this month, with rising equities accounting for 94 basis points of the 151 bps easing since November. Wealthy households may gain from the highest equity share in U.S. savings portfolios since the 1980s.
Last week, Bank of England policymaker Catherine Mann remarked that wealthy families were immune to higher interest rates and still spent on travel, restaurants, and entertainment, making services inflation difficult to control. Spinning stocks may affect policy despite bubble danger. Your perspective counts.
Many say central banks should embrace the AI investment boom because it enhances productivity and helps economies to grow faster without overheating, avoiding higher rates.
Invesco Chief Global Market Strategist Kristina Hooper says the stock market's high valuations are attributed to the 'Magnificent Seven' megacaps' predicted profit growth of over five times that of the 493 remaining S&P500 firms. She said these are fundamentals, unlike late-1990s online companies that grew on optimism.
"This isn't 'irrational exuberance' — it's more like 'rational exuberance'" , Hooper. Powell may want to calm things down in his own way, but he won't copy his now-tarnished Fed predecessor.
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