Increasingly bullish euphoria over the S&P 500 is reaching dangerous levels, according to a recent report by RBC Capital Markets’ head of U.S. equity strategy, Lori Calvasina. Her analysis indicates that futures contracts are reaching levels seen last September, which was followed by a massive sell-off.
The futures market has continued toward its previous long peaks from the fall of 2018, moving parabolically. This increase has been substantially led by a belief that the S&P will continue rising above $3,000, though Calvasina does not believe this will occur.
“If we’re only getting modest earnings growth this year, S&P 500 only deserves to have modest expansion based on how it is played out the last few times. If we do overshoot my target we’ll be in a situation where the market gets overbought. I can see this unfolding.”
Potential Financial Crisis
The news of potential peaks in the market lends credence to the belief that the US economy is headed for another financial crisis. The extreme euphoria of the stock market and economy over the last year has begun to cool, and consumer confidence is decreasing.
The main issues that are driving the fear relate to concerning government policies regarding debt and market manipulation. Quantitative Easing (QE) and Modern Money Theory (MMT) essentially use the central bank as a faucet for capital into the economy, leading to substantial fears of future inflation.
As inflation grows, consumer spending and confidence decline, leading to market contraction. This would, in turn, result in a substantial economic crisis.
Bitcoin Hedges the Risk
While the current euphoria seems far from doomsday predictions levels, the change is very simple. An over-bought market can rapidly collapse as proof that fundamentals not supporting the valuations emerges. As the market collapses, the cycle of loss and valuation decline increases exponentially.
This sort of market will eventually come. Whether it will be as damaging as the crisis of 2008 remains to be seen. However, it is clear that the market will eventually give in. The answer for investors is hedge purchases made outside of the market’s currency cycle.
Since government financial policies will likely cause the crisis, investors are seeking hedges that are not government-linked. These are often called Store of Value (SoV) investments because they provide stability outside of government intervention.
Bitcoin (BTC) is one such example. Because of its decentralized governance, it offers SoV potential apart from government intervention.
Do you think the S&P500 is ready for a major decline? Will it continue its bullish trend this year? Let us know your thoughts in the comments below!
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