Stocks soars despite weak data on Interest rate cut and monetary easing. How long it can last?

Nobody knows when the balloon will bust. One may assume, the balloon can be pumped more since it looks like it will keep going. The GDP growth of US is slowing down and China along with global economy is slowing too.

Some of the big names such as Google, Amazon, Cisco, Fedex, Caterpillar etc. missed their analyst's earning estimate but others have beaten too such as Intel, MSFT and pharmaceutical companies. Therefore, company earning is not giving clear signal. But overall earnings of large corporate is slowing down.

FED's argument for rate cut is about insurance against trade war and economy's slow down. Then, why on earth stocks are hitting all time highs: a rather sign of strong economy.

Interest rate is already low. Therefore, lowering it further can risk the loss of powerful monetary control. Some argues that recession was averted during 1995-1996 by three rate cuts. But one has to remember, on that time, interest rate was around 6%.

Usually, interest rate depends on supply and demand. But FED may be forced by external forces such as pressure from President himself. Since president boast stock market's performance to his success. He will never want a stock market that moves along with fundamentals of the economy.

Since one can argue that most stocks are overvalued looking into the fundamentals, therefore a big 20-30% correction is required to jump-start the economy. But President is against such correction and put lots of pressure on FED chairman.

The flipping of the two- and 10-year yield curve which also known as inverse yield curve suggests that there is recession already on the horizon.

If this bubble is let to continue for another 10-20% with disregard to fundamentals, it will crash down sooner or later. For example, a democratic win of presidency can be the prick of a pin to that ultimate bubble.

The problem is that if the bubble continues, it will kill the gains of future investors or even generations. Think about investors who bought at the peak of 2006 and 2007. It took another four years for benchmark to reach that level.

The bigger risk is that with more that 40-60% correction, economy can enter into another recession that can last another half of decade or even decades. Therefore, it is better for soft landing than the harder landing later.

However, when economics and politics intermingled, the outcome can become very unpredictable and unruly dangerous.

Disclaimer: This opinion is not a financial advice, it my personal perspective and opinion. Please seek professionals for financial decisions. This opinion is only for educational purpose.

Image sources: Most images are open sourced (e.g. Pixabay, Wikimedia etc.) with Creative common license. Some images are used with due courtesy to respected owners.

Thanks for reading.
@dtrade
Cryptominer , occasional trader and tech blogger since 2013