Why I think that probability of downside in the markets is much more than any upside probability right now
2 factors that primarily drove up the stock prices during the pandemic were:
Increased retail participation due to more time (work from home), excess savings due to less expenditures in services (vacations, salons, restaurants, night life).
More institutional money flows due to super easy monetary policy by the central banks. The companies that invested in more capacity already had the funds and the rest just borrowed and invested to offset losses in operating businesses.
Both the open taps (easy monetary policy and excess savings) are coming to an end. With high inflation, a lot of the stock market gains are getting used up now as well.
Fresh money has to flow in for the markets to go up. While wages have gone up, so has the inflation. Other asset classes have also made people a lot of money such as real estate or cryptocurrency (even after the recent declines). What if the value of these asset classes start coming down? (CBDCs or stricter regulations are on the horizon). Then people would have to sell stocks to generate liquidity after losses in these other asset classes.
My point is that while nobody can predict where markets will go from here but thinking in terms of probability, there seems to be much more downside probability than upside.
Correct me if I am wrong in my thought process.
Submitted February 11, 2022 at 03:24AM by BusyPossibility_64
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