According to analysts, investors are now somewhat careless. They tend to ignore the gloomy economic outlook and many risks that are looming on the horizon. Speculators are now fully focused on shares, paying zero attention to macroeconomic risks and the real market situation.
Danielle DiMartino Booth, a former adviser to the Federal Reserve Bank of Dallas, stressed that traders are so entranced by surging stocks that they are ignoring multiple red flags on the economic front, drawing comparisons to the dot-com and housing bubbles. "We saw similar levels of complacency in 2000 and in 2007," she added. "Those episodes don't end very well, but they do give new meaning to the cliché, 'the calm before the storm.' I really do think that that's where we are." At the same time, she pointed to a surge in bankruptcies and growing pressure in the American banking sector.
Booth warns that stocks are in a "slow-motion melt up" as investors foolishly believe that the bull market can last. Those who are unwilling to see that are likely to face devastating consequences.
The former advisor to the Dallas Fed anticipates more bank runs in the coming months similar to SVB-style collapse. This gloomy scenario may come true due to the increased cost and difficulty of borrowing.
Notably, since the start of this year, the S&P 500 and the Nasdaq Composite have risen by 19% and 36%, respectively, amid the AI buzz and easing recession fears. Nevertheless, there's "acute weakness" in several economic sectors. Many companies are filing for bankruptcy at the fastest rate since 2009. Apart from that, commercial real estate developers are struggling to access capital as lenders pull back, DiMartino Booth pinpointed.
