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There are at least two possible scenarios: 1) inflation continues to rise, keeping the pressure on the Fed to raise interest rates. This being so, entities li

There are at least two possible scenarios: 1) inflation continues to rise, keeping the pressure on the Fed to raise interest rates. This being so, entities like retirement funds that must have some yield, now have non-risky options to get it. They rotate out of tech stocks, which are generally considered higher risk, higher yield. 2) crash in stocks causes the Fed to lose courage, they don't raise interest rates after all. Now Treasury bills and other low-risk options are too low yield, not even keeping up with inflation. Whether they are confident in the tech stocks or not, entities that must find yield somewhere will invest in them because "lower-risk" options are no longer options, as they are guaranteed to lose money on an inflation-adjusted scale. This means tech stocks go back up, even if nobody much believes in them. Whether or not the Fed (and European Central Bank and other similar entities worldwide) are more afraid of inflation or of stock prices crashing, is not a thing I can tell you. But those are, I think, the two scenarios.

dageshi 5y ago
I have wondered if some of the money coming out of the US stock markets might flow into the european markets. Purely because european markets didn't really have the blowoff prices we saw in US markets in the past 6-12 months and in the US there's just not that many places to put it all? On the other hand usually if the US sells off, so does europe, so probably this time would be no different.
- Gustomaximus 5y ago
  Consider what will better bounce back. While if US sells off, so does Europe. However as the market recovers you would think Europe would return to previous 'reasonable valuations' faster than US would return to their current greater overvaluation levels? Personally I've avoided US markets for some time for more p/e realistic markets like Australia (my country) and Europe in part for above reasoning. The one I am watching is Asia, as SE Asia has the growth potential over western nations I feel but its not quite time but I would like to get more across Asian based ETF's in the future. ...IM no expert so shovel full of salt and all that :)
anon9001 5y ago
A trend I've noticed every time this happens is that saying "tech stocks" is kind of like saying "cell phones". At some point they're just "phones" and "stocks". Not 20 years ago, it was rare to be employed in tech outside of one of the major hubs. Today, some small towns couldn't even exist without Amazon. When I was a kid, if you worked at Wal-Mart, you probably screwed up. Today you can have a high paying SWE job for Walmart. Microsoft is now one of the largest video game developers in the world, and Netflix and Google have essentially killed the entire business of cable TV for anyone under 40. Apple has the most successful and widely adopted consumer electronic device on the market, and without it, people would lose their collective minds. Everything is now tech. So, there's a third, middle option: the fed actually walks the tight-rope and the amount of inflation is acceptable and stocks take a couple of years to regain their losses. This is the most likely option. That could mean raising rates as planned, raising fewer times than planned, or not raising at all. If that works, then great, everyone's stocks will recover over time and they'll be happy, and inflation won't get too out of control. Keep in mind that some inflation is considered "good" in this system and has been going on pretty consistently since we started central banking. If that doesn't work, then the fed has so much authority to take direct action in the markets, they have essentially infinite capital to deploy to move markets in any direction they'd like. Using this authority is a risk, but they have been successfully doing some type of "quantitative easing" since 2010. There's a lot more creativity to go in engineering financial markets before they'd simply give up the game and accept loss of control of the currency, because it would invalidate the idea of central banks and be incredibly disruptive to society. With most of congress filled with wealthy elites, if it comes down to a crisis like in 2008, everyone will cooperate to preserve their elite status, which is exactly what happened then. It's essentially mutually assured destruction between governments and business if they can't work out a deal, which is what they were able to do. They'll do it again if needed. Also, as long as things change slowly, people generally don't notice, or don't do anything about it because it's become normalized. There's $1.7T in US student loan debt and that's barely crossing the threshold for people being upset enough to take political action about it.

dageshi 5y ago

I have wondered if some of the money coming out of the US stock markets might flow into the european markets. Purely because european markets didn't really have the blowoff prices we saw in US markets in the past 6-12 months and in the US there's just not that many places to put it all? On the other hand usually if the US sells off, so does europe, so probably this time would be no different.

Gustomaximus 5y ago
Consider what will better bounce back. While if US sells off, so does Europe. However as the market recovers you would think Europe would return to previous 'reasonable valuations' faster than US would return to their current greater overvaluation levels? Personally I've avoided US markets for some time for more p/e realistic markets like Australia (my country) and Europe in part for above reasoning. The one I am watching is Asia, as SE Asia has the growth potential over western nations I feel but its not quite time but I would like to get more across Asian based ETF's in the future. ...IM no expert so shovel full of salt and all that :)

anon9001 5y ago

A trend I've noticed every time this happens is that saying "tech stocks" is kind of like saying "cell phones". At some point they're just "phones" and "stocks". Not 20 years ago, it was rare to be employed in tech outside of one of the major hubs. Today, some small towns couldn't even exist without Amazon. When I was a kid, if you worked at Wal-Mart, you probably screwed up. Today you can have a high paying SWE job for Walmart. Microsoft is now one of the largest video game developers in the world, and Netflix and Google have essentially killed the entire business of cable TV for anyone under 40. Apple has the most successful and widely adopted consumer electronic device on the market, and without it, people would lose their collective minds. Everything is now tech. So, there's a third, middle option: the fed actually walks the tight-rope and the amount of inflation is acceptable and stocks take a couple of years to regain their losses. This is the most likely option. That could mean raising rates as planned, raising fewer times than planned, or not raising at all. If that works, then great, everyone's stocks will recover over time and they'll be happy, and inflation won't get too out of control. Keep in mind that some inflation is considered "good" in this system and has been going on pretty consistently since we started central banking. If that doesn't work, then the fed has so much authority to take direct action in the markets, they have essentially infinite capital to deploy to move markets in any direction they'd like. Using this authority is a risk, but they have been successfully doing some type of "quantitative easing" since 2010. There's a lot more creativity to go in engineering financial markets before they'd simply give up the game and accept loss of control of the currency, because it would invalidate the idea of central banks and be incredibly disruptive to society. With most of congress filled with wealthy elites, if it comes down to a crisis like in 2008, everyone will cooperate to preserve their elite status, which is exactly what happened then. It's essentially mutually assured destruction between governments and business if they can't work out a deal, which is what they were able to do. They'll do it again if needed. Also, as long as things change slowly, people generally don't notice, or don't do anything about it because it's become normalized. There's $1.7T in US student loan debt and that's barely crossing the threshold for people being upset enough to take political action about it.