Markets Get Pessimistic After Irrational Exuberance Wears Out
But there is something called intrinsic value of any asset. Can the price assigned to it stay divorced from the intrinsic value for a long time? And can the financial market stay immune to what is happening in the real world, good or bad?
We have had a record run in the first week of this year. This has happened despite
- 1.4 lakh people losing jobs in December in the US, first such loss since April of 2020,
- the COVID-19 coronavirus mayhem has been at its worst in US, UK and some other European countries despite vaccine rollout, and
- the democratic institutions in the US are facing one of the worst attacks in the country’s history.
Any of these events would have triggered a selloff in normal circumstances. Not anymore. The markets shrugged all of them together as if they do not matter.
History tells us that such period of irrational exuberance is almost always followed by a period of equally irrational pessimism. It is,…