What's actually holding markets up right now

Added: 2026-06-03

[00:00:00]Global chaos, trade wars, a critical oil trade point under threat.

[00:00:06]And yet the market keeps stumbling out of the gates, shaking it off and charging on like a racehorse thundering down the final stretch.

[00:00:15]So why are markets outrunning gravity?

[00:00:18]Is this strength or is this tired horse about to run [music] out of track?

[00:00:27]>> Stock markets have refused to crash [music] essentially for a number of reasons.

[00:00:31]We've seen a number of crashes over the years and they are [music] perfectly natural. And at the time people think this could get a lot of worse and then turns around. A crash [music] is an entirely different thing and that is caused by a fundamental realignment or a fear [music] of a problem with markets.

[00:00:47]>> Comparisons with previous crashes have come thick and fast over the past year [music] with many analysts comparing stock concentration levels to the 1999 dot-com bubble and the 2008 housing crash. [music] >> In 2008 was more like a banking and credit stressed induced crash. And then in 2020 there was COVID induced >> [music] >> and then the shock was sudden, the liquidity evaporated and the Fed had to then jump in aggressively. But right now it's less of a banking kind of a collapse I would say [music] and it's more like a valuation and a duration problem.

[00:01:24]>> We are looking at a market of stocks [music] not the economy. You look at the economy, so therefore most is closed.

[00:01:31]Are we seeing inflation come back in?

[00:01:33]We're seeing all these places where fuel prices are starting to rise. That's bad for the aggregate [music] economy but not companies.

[00:01:40]>> The key point here is simple. The market doesn't need to feel healthy to keep looking healthy. And when [music] you look beneath the headline index, the picture is far less heroic than it seems with a small number of mega caps doing the heavy lifting. Furthermore, the crash and earnings many have predicted for these big companies has simply never materialized.

[00:02:03]>> I think it was 86% of S&P 500 companies beat their earnings this quarter just gone.

[00:02:09]That to me says this rally's being backed up with earnings and with money and the buyers are in control.

[00:02:14]>> [music] >> One thing that you need to bear in mind is there are a lot of investors who just buy index trackers and in some parts of the market, particularly in the US, over 50% of the market [music] is in index tracking and we haven't seen large-scale reallocations of index tracking away from equities into fixed income and things like that.

[00:02:36]>> But maybe the biggest reason markets refuse to crash is also the least comfortable one to say out loud. Policy makers don't like crashes. [music] >> We're seeing inflation increase. We're seeing both CPI and PPI increase up to levels that we've not seen in the past couple of years. Kevin Warsh has just joined the Fed. We don't know how that's going to operate in terms of what his Fed looks like, but [music] we know he's going to go there with a mandate to try and lower interest rates. That again is supportive of markets. Be careful, though, inflation high is going to limit his ability to do things.

[00:03:10]>> So why won't markets crash? There are several reasons. Ample liquidity, stronger than expected corporate balance sheets, and policy makers with every reason to avoid a full-blown accident.

[00:03:23]But that doesn't mean the danger is gone.

[00:03:26]>> A crash will happen at some stage and it will be very scary. It'll probably be driven by a particular factor and the trick as investors is to work out whether we're in a healthy correction or we are actually going into a crash. And crashes are caused by uncertainty, but the uncertainty can be taken too far and suddenly you find a lot of people who are exposed who've got too much leverage and are over invested in the equity market.

[00:03:51]>> It could be because of this over leverage the sustained liquidity and policy support [music] is what can create or inflate asset bubbles even when everything looks relatively calm on the surface. The longer the system absorb shocks the more investors should ask not if but when the break will come.