The US stock market is overbought to the point that it is becoming dangerous. The current bubble of overinflated stock values is seen by many experts as potentially the most explosive downturn in economic history.
Market legend Jeremy Grantham recently commented about the market price action, calling the current bubble as the “Real McCoy”. The US stock market has been consistently propped up by the Federal Reserve and Treasury, and the ensuing over-optimistic market has continued to buy stocks as the economy continues to face fundamentally dire circumstances in the real world.
The market is seemingly not allowed to self-correct anymore, with stock prices no longer responding to the natural economic cycles of expansion and contraction. Now, comparatively, policy makers and central bankers constantly push money into the economy and don’t allow businesses to fail like they sometimes should. Short-term avoidance of the shortfalls of economic contraction is now instead threatening to create a correction of historic proportions.
Current traders view the Fed a little like falling back on their parents to bail them out if things go south, with traders paying large premiums for stocks in a never-ending cycle of buying after market dips. Experts agree that this sort of attitude simply cannot continue, with many experts espousing a need for modern monetary policy to be very seriously considered sooner rather than later.
The S&P 500 seems to be hinting at a technical downturn as well, with the 200 day moving average showing that the stock market has entered a bearish sentiment.
Time will tell if traders will finally allow the market to correct itself.