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The Economy under Guard
Journals / The Economy under Guard / Volume 2021 Issue 4 / Popular indicators of the crisis in financial markets
VAK Russia 08.00.05

POPULAR INDICATORS OF THE CRISIS IN FINANCIAL MARKETS Popular indicators of the crisis in financial markets

Published in The Economy under Guard · Volume 2021, Issue 4 · Pages 34–44 · Rubric: Economics and National Economic Management
DOI: https://doi.org/10.36511/2588-0071-2021-4-34-44
Received: 02.09.2021 Accepted: 12.12.2021 Published: 29.12.2021
Authors
DM
Dmitry Kornilov
EL
Elena Kornilova
ABSTRACT
The article provides an overview of the factors that ensure the growth of the US stock market despite the fact that a number of popular indicators signal the opposite. The dynamics of indicators (Total Market Cap) / GDP, (Total Market Cap) / (GDP + Total Assets of Fed) and P/E, Shiller P/E ratios are presented. According to Buffett’s Total Market Cap / GDP indicator, the stock market is now “significantly overvalued” and the Shiller P/E ratio has surpassed the “Great Depression” period. At the same time, an increase in the amount of money in circulation as a result of the implementation of Quantitative easing (QE) programs of the FRS, inflation risk and a decrease in the profitability of investments in alternative assets (government and corporate bonds) are forcing investors to stay in stocks and continue to build up positions despite the increase risks and a decrease in potential profitability in the future. The growth of the US stock market is also stimulated by the buyback programs of companies and the inflow of foreign capital. In 2020, there was a V-shaped recovery in the economy, and an absolute record for the amount of funds raised was set in the IPO market. Thanks to financial incentives, the stock market will continue to grow even despite the pandemic and overvalued assets, but the notorious “black swan” may become the “trigger” for the start of the crisis in the financial markets.
KEYWORDS
stock market, crisis, correction, Buffett indicator, Shiller P/E, buyback, treasury, quantitative easing, total market cap
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