Rally or risk? Financial expert warns of risks on the stock markets and a lack of hedging.

Rally or risk? Financial expert warns of risks on the stock markets and a lack of hedging.

According to a report from finanzmarktwelt.de, the stock markets are currently experiencing a brilliant rally that is being driven by Wall Street. Investors are ditching their previous defensive strategies and shifting their investments to technology stocks, junk bonds and small-cap stocks. The euphoria and greed are back in the stock market as the Federal Reserve is expected to halt interest rate cuts and potentially begin cutting rates in 2024. This speculation has portfolios split 60/40 between stocks and bonds poised for their best month since 2020.

Inflows into the S&P 500 and Russell 2000 have surged, while demand for hedging has also fallen. The cost of hedging against a stock market correction has fallen to its lowest level since data collection began in 2013. In addition, Wall Street strategists are predicting further gains for the stock market, and hedge funds have increased their exposure to US stocks in 22 years.

An analysis shows that the unbridled rally in the stock markets is due to the expectation of an imminent interest rate adjustment by the Federal Reserve. However, low demand for hedging and strong gains in stock indices could create a bubble in financial markets, which could lead to a significant downturn if current market sentiment is unsustainable.

It remains to be seen whether analysts' optimistic forecasts will come true or whether the concerns of financial experts such as Marija Veitmane and Peter Chatwell will come true. Current economic data and the potential impact of aggressive interest rate policy on the stock markets are factors that could influence future developments.