So much of the bull market in risk assets over the last nine years was linked to Federal Reserve stimulus put in place to save the economy during the financial crisis.
Low rates and other easing measures fueled a boom in stocks by enabling companies to borrow and aggressively buy back their own shares. A lot of the easy money injected into the system found it’s way into stocks because there was no alternative, lifting equity valuations to high levels.
All assets have underperformed in 2018 simply because the Fed is hiking Interest rates and reducing the balance sheet.
That’s why the market fell to new lows specifically when Fed chief Jerome Powell said the unwinding of the central bank’s balance sheet would continue at its current pace.
We’ve been in an economic expansion for the past seven to eight years, which is already very long. A recession is likely to come within the next two years.”
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