Well, that didn’t take long. The Fed began to pump less Quantitative Easing (QE) into the financial system in November and the stock market’s wheels have started to wobble after barely two months of less cheap money, let alone move to withdraw it.
Investors are already starting to ask themselves how much the US Federal Reserve can do to tighten monetary policy before it either puts the brakes on the economy, breaks the stock market or both – and the answer might be not very far at all.
“Some of the asset classes, funds and individual stocks which have performed best, attracted the hottest money flows and drawn the biggest headlines have started to flag, or even fall sharply. All are generally toward the riskiest end of the asset class spectrum, where the rewards can be highest, but the risks are too, should something go wrong,” AJ Bell Investment Director Russ Mould said.
“Small caps are wobbling. America’s Russell 2000 index is now trading below where it was twelve months ago, and the UK’s FTSE Small Cap benchmark is losing a little momentum.
“Meme stocks are taking a pasting. You have to hope that anyone who has held on to GameStop, AMC Entertainment and others to thwart the hedge funds who were short-selling these names have not ended up cutting off their own noses to spite their face. Buyers in the very early days may still be in the black, but anyone who piled in late to join the fun or try to make a fast buck could now be deeply in the red.
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