September 25, 2022

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What Causes a Stock Market Melt Up?

3 min read

A Stock Market Melt Up can occur without obvious economic reasons. This can happen when investors buy assets based on fear of missing out, greed, or fundamental improvements. But in recent years, the S&P 500 and Nasdaq have both grown by nearly 90% and 140%, respectively. Don’t let recent turbulence overshadow the fundamentals of a healthy economy. Let’s explore some of the most common causes for market meltups.

A Stock Market Melt Up is usually marked by prolonged price appreciation, but prolonged price appreciation does not necessarily signal a meltup. Instead, look for leading indicators and lagging indicators to gauge the market’s direction. Leading indicators, such as the Consumer Price Index, are a precursor to future market trends, indicating a potential shift in consumer spending. Lagging indicators, such as the Consumer Price Index (CPI) and moving averages, confirm current trends.

To determine whether a Stock Market Melt Up is imminent, investors must understand different economic indicators. These indicators give investors a general picture of the overall health of the economy, which can help them determine whether to buy or sell stocks. For example, if the CCI rate is dropping, it may signal a market meltup. Conversely, a sky-high CPI indicates that the economy is reopening. If this trend continues, the S&P 500 could go into a sharp uptrend.

The Millennials are entering their peak spending years and inherited $68 trillion. If you want to profit from their spending and investing behavior, you need to understand their mindset. In the GameStop meltup, technicals had little to do with the price movement. The stock’s rise began when thousands of millennials encouraged each other to buy it using social media. Traders joked that GameStop could become the next Blockbuster.

Another important consideration is the Fed’s tightening policy. While it has been the case before, an inverted yield curve and a short recession preceded a stock market meltup. In 2019 the yield curve inverted, suggesting that a top in the stock market was imminent, however the market widened immediately afterward after a mild recession and stock market correction. While these conditions do not predict a stock market top in the near future, the Fed is unlikely to increase interest rates until 2023.

Millennials are disrupting entire industries. In the coming decade, millennials will replace the Baby Boomers as the blue chips in the stock market. This generation will eventually be the largest economic force in the world. As a result, they are capable of generating 20% or more returns. But it might take a few positive factors to trigger a 20% meltup. And there are no guarantees, but this is a very real possibility. So, you should be patient and wait for good news.

The October stock market rout was a healthy, albeit overdue, correction. It was likely the first leg of a larger decline. However, it improved valuations. This may be due to the excellent fundamentals of these companies. Investors should keep in mind that the cyclical conditions in the US are similar to those that characterized the previous stock market declines. While the Junk bond option-adjusted spreads remain tight, this can ensure a healthy correction.

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