Article:
The prevailing financial market conditions are constantly fluctuating, and while some predict a permanent high plateau, various factors suggest otherwise – a point of view where the aforementioned article significantly enlightens.
Historically, an assumption has often been made that the stock market could achieve a state known as a permanently high plateau. This term was initially coined by Yale professor Irving Fisher, a prominent economist in 1929. His statement created an impression that the bull market was a persistent phenomenon. However, the Great Depression that followed soon after served as a sad but impeccable reminder of the unpredictability of economic trends.
Fast forward to today, and several stock market pundits are speculating once again that the stock market may be on the verge of a ‘permanently high plateau’. One of the key arguments used in this prediction is the current situation wherein the stock markets are consistently in the green due to ultra-loose fiscal and monetary policies by global central banks along with the bullish underpinning of the technology sector.
However, certain counterpoints must scrutinize this belief. The first is the cyclical nature of market economics. Significant historical evidence strongly suggests that market economics is not a linear phenomenon but instead follows a cyclical nature, with periods of prosperity followed by downturns. No matter how high the markets may rise, an inevitable correction is always around the corner due to unforeseen circumstances such as geopolitical events, economic indicators, corporate earnings, or black swan occurrences like pandemics.
Moreover, the very nature of the stock markets as speculated entities ties them down to the perception and anticipation of investors. In reality, these are highly variable factors that can result in sudden market reversals. If a significant proportion of investors decide to sell due to any number of reasons, such as economy fears or cash requirements, the market inevitably goes through a corrective phase.
Furthermore, there is a constant tug of war in the market between optimism and pessimism, typically between those who believe in value investing and those who chase momentum in stocks. This disparity, at times, leads to volatility, further defying the possibility of a permanently high plateau.
Central Banks’ role is another critical aspect that does not support the perpetual high plateau theory. While these institutions’ actions have helped the economic recovery post the 2008 financial crisis and now during the Covid-19 pandemic, it may not always be feasible for them to intervene on such a large scale. There is an inherent limit to the continuation of such policies, after which point, it may generate inflationary pressure leading to an economic downward spiral.
Finally, the belief in the tech sector as the market’s robust pillar might be, to a certain extent, over-optimism. Every industry, however strong, is vulnerable to changes in the economic or systemic environment. It’s plausible to recall the dot-com bubble burst in 2000, which proved that even the technology behemoth is not invincible.
In conclusion, while the idea of a permanently high plateau is appealing, it is necessary to incorporate pragmatism, not optimism or pessimism. History has repeatedly shown that while markets can achieve great heights, they can also face dramatic downturns resulting from dynamic economic factors, investor sentiments, and global events. Hence, rationality, comprehensive understanding, and prudence should guide financial decision-making rather than unfounded theories.