The market was speculative, but the Fed is tapering bond purchases, futures are predicting three rate hikes, and inflation is surging.
There are concerns about a lack of breadth in the markets as of late.
During late-stage bull markets, investors take on a lot of leverage to chase returns.
Margin debt may fuel the bullish advance, but accelerates the market’s eventual decline as leverage reverses.
The Fed’s monetary policy has influenced investors to take on increasing levels of risk. They believe that all players will be rational, and won’t push into the red.
The Fed is dependent on everyone acting rationally; however, this has never happened.
Behavioral biases of individuals remain a threat to the Fed. They are hoping no one pushes stocks into the red when they reduce liquidity and hike interest rates.