REIT - Weekly Market Pulse: Rational Exuberance?
2024-03-25 08:20:00 ET
Summary
- The dollar was up a little more than 1% last week and the short-term trend is on the cusp of changing.
- Stocks, large and small, had a good week as bonds rallied in the wake of the FOMC meeting.
- The rally last week was broad based with 10 of 11 economic sectors higher. Real estate was the lone loser, down just 0.4%.
Weekly Market Pulse: Rational Exuberance?
But where do we draw the line on what prices matter? Certainly prices of goods and services now being produced–our basic measure of inflation–matter. But what about futures prices or more importantly prices of claims on future goods and services, like equities, real estate, or other earning assets? Are stability of these prices essential to the stability of the economy?
Clearly, sustained low inflation implies less uncertainty about the future, and lower risk premiums imply higher prices of stocks and other earning assets. We can see that in the inverse relationship exhibited by price/earnings ratios and the rate of inflation in the past. But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?
– Alan Greenspan, The Challenge of Central Banking In A Democratic Society