This is not investing. This is gambling.
US stock market has become a giant speculative field. Within a few weeks, sentiment has moved from “extreme fear” to “extreme greed”, and it does not sound too good anyway.
In March, official voices, including Donald Trump, encouraged investors to buy the dip. As a result, many inexperienced individuals recently entered the market betting on V-shaped recovery. And this is exactly what we have seen for the past weeks: V-shaped recovery of US equities.
Meanwhile, with -4.8% GDP growth during Q1 and 30 million new unemployed people, US economy is heading toward a severe crash. But more than ever, central banks and governments have encouraged moral hazard, leading to the idea that any market weakness should be bought whatever the fundamentals.
Two years ago, people were buying bitcoin and other cryptos, and most of them could not even explain why they were doing that. They just hoped for easy profits. Now they are chasing US stocks.
Because mutual funds are benchmarked, most active portfolio managers have been forced to follow the rally in order not to lose the competitive battle. Even if some of them question the rationality of this violent bounce, they have no choice but to remain long US equities.
Then what? History shows that financial euphoria always led to disasters. Will the Fed save everyone when markets reverse? Will the Trump administration send checks to online traders to recoup their losses?
Remember that if another crash occurs, Trump’s reaction is likely to be: “I take no responsibility.”