Key US stock indices continue to grow. At the same time, they have been doing this for quite a long period. To be more precise, almost from the beginning of the "coronavirus" epidemic globally. At first glance – this is a paradox. When the world economy almost completely stopped, the US stock indices (and not only the US) began to grow and continue to do so today. It turns out a situation in which production and GDP are just approaching pre-pandemic levels, and the stock market has almost doubled by this time compared to the time before March 2020. But in reality, the companies included in the key indices have not doubled in volume. Their sales volumes, revenue and profit volumes, and production volumes have not doubled. There was an "artificial growth." Growth, which is based only on the increase in the money supply. "Inflationary growth," so to speak. It is a banal economic mechanism. If the number of goods and services produced in the country does not change, and there is more money, inflation increases, and each asset, product or service becomes more expensive. It has happened in the last year and a half with many companies, like Tesla or Apple, with bitcoin and many crypto assets, with real estate (which has increased in price in the United States by 40%). It's just that there was a lot more money in the economy, and they began to devalue. At the same time, not through ordinary inflation, which mainly considers changes in prices for goods and services, and not for stocks, real estate, and cryptocurrencies. The US currency is depreciated precisely through large corporations and investment instruments. Bitcoin, for example, has increased in price several times during the pandemic. Although, it would seem that other activities than investing in bitcoin should cover humanity.
All this suggests that "bubbles" are inflating in all markets. The markets show growth that is not based on any real mechanisms and changes. Thus, according to many experts, sooner or later, a crash will follow. For example, the investment bank Morgan Stanley believes that the markets are too overvalued and vulnerable and also draws attention to the fact that there has not been a single correction exceeding 10% since March 2020. By the way, this is what we constantly pay attention to when analyzing the pound/dollar pair: after a trend of 2800 points, the pair managed to correct by only 23%, which is very little. And the euro and the pound cannot show strong growth now because the money supply in the US continues to inflate every month (the Fed has not yet announced the curtailment of QE). Also, Morgan Stanley draws attention to the fact that market indices practically do not react to news related to the increase in the number of coronavirus diseases or to various geopolitical changes. Many companies are overly overvalued, and their profit indicators are not comparable to their capitalization. All this can lead to a market collapse at any time.The material has been provided by InstaForex Company - www.instaforex.com