Mike Green: Passive Stock Market Edifice Put To The Test As Recession A Near Certainty
Forward Guidance
Market Dynamics: The Cycle of Emotion and Flow
Market movements are heavily influenced by emotional reactions, with rising markets creating a self-reinforcing positivity, while downturns can incite excessive fear despite minor declines from peaks. Job loss and rising unemployment may lead to negative market sentiment, potentially reversing the trend and causing significant downturns. Data indicates that passive investment flows have remained flat to slightly negative, suggesting that if people start losing jobs and discretionary contributions wane, this may lead to net outflows. Historical instances of passive selling during market crises, such as March 2020 and August 2015, underscore the severity of this phenomenon. The current environment suggests a risk of aggregate flow turning negative, which could stifle stock market growth and prompt confusion about the stagnant market despite positive fundamentals.
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