Is This a Market Melt-Up? Here Are Some Ways to Tell

There is no doubt that stocks are once again hot, to which a question arises, is this a market that melts? Here are some ways to say.

It should be noted that after a fall at the end of last year, benchmark indices have been rising as investors continue to accumulate, setting new historical highs in the process. This way, more questions continue to arise, such as, is this other rally justified by moderate pivots of the main central banks around the world, green shoots in the global activity and earnings results that are surpassing the expectations of Wall Street? Or is it something that sounds like alarms, a fusion?

Even so, Larry Fink, who is the CEO of BlackRock Inc., said he thought a merger might be a possibility since the money that had been moved aside after a massive sale at the end of last year returned to the markets.

Necessary answers

There are various questions that arise and of course, it is necessary that they are answered. Therefore, we must clarify certain points. Now, what does melting mean? You will not find it in a dictionary; It is in the eye of the beholder. It is a term that operators use to describe a specific market event: a rapidly accelerating rally driven solely by sentiment, with high participation, volumes, and volatility. That is, the optimism of the market has been unleashed from the fundamentals, and investors are chasing returns by jumping on a car that moves up.

Another question to clarify is, what classifies something as a melt? This being so, there is no exact criterion, but the term is used more frequently when a market has gone from constant profits to others that are increasingly faster.

Added to that, have we seen demolitions before? Of course. The dot-com bubble in 1999 and 2000 is a classic example. Prices soared, and volumes increased as investors picked up momentum, while earnings growth fell well behind the rise in share prices.

So, a melt is the same as a bubble? no, they are not synonymous. And again, the fundamentals, or the lack of them, are the key. A landslide can push prices into a bubble territory if the surge is altered with things like profits and sales. But if those who reach the price performance in a reasonable time, it is possible to avoid a bubble.

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Source: Kailey Leinz and Luke Kawa | Bloomberg