Markets opened lower on Monday, but closed the day green. Why? Because retail investors continue to aggressively buy market dips.
In the morning, yesterday, an analyst at Morgan Stanley suggested that any drop following Moody’s downgrade of U.S. credit from AAA to Aa1 would be temporary.
Sure enough, investors came into the market in droves by lunchtime.
But what’s most interesting in our current V-shaped market recovery is what’s missing: The Federal Reserve.
During the 2020 and 2008 bear markets and V-shaped recoveries, the most significant driver wasn’t retail investors – it was policymakers, opening up the monetary spigots.
Both times, the Federal Reserve’s balance sheet soared.
Perversely, the lack of monetary intervention in this market bounce is good news. Investors are pushing markets higher, not money created out of thin air.
Markets may make a new all-time high in the coming weeks at the rate they’re going.
But if you’ve got a bit of contrarian in ya, markets pushing higher on retail buying is likely also raising the hair on the back of your neck a bit. Caveat emptor.
-Addison
