The Federal Reserve’s November 2024 Financial Stability Report warns that historically high equity valuations could threaten financial stability. Elevated asset prices, paired with low market liquidity, leave the U.S. financial system exposed to sudden shocks.
While valuation metrics are important, the Fed notes they often fail to prevent prices from reaching extreme levels. This disconnect raises concerns about the potential fallout if prices were to decline abruptly.
As equity valuations continue climbing, the Fed’s findings serve as a reminder: strong fundamentals don’t eliminate risks, especially in a volatile financial environment.
Latest Fed financial stability report flagging historically high equity valuations.
But also note that if valuation metrics were so important then prices would not get that high to begin with. pic.twitter.com/OZCExDNe8V
— Joseph Wang (@FedGuy12) November 23, 2024
The most important chart the masses are ignoring.
The 2-year yield is set to explode, while the longer end breaks out of its secondary correction. Few understand the implications of what awaits.
Interesting next couple of weeks .
We await. pic.twitter.com/JyPbBuIHsf
— The Great Martis (@great_martis) November 23, 2024
Nobody seems to notice that market caps are too large to be sustainable across so much of this bubble. Mega market caps cannot sustain mega growth; only the appearance of it. 1989 Japan had a lot to do with buybacks as earnings.
— Ben (@Ben4445125402) November 25, 2024
Sources:
https://www.americanbanker.com/news/the-fed-warns-inflated-asset-values-could-be-a-stability-threat
https://www.federalreserve.gov/publications/financial-stability-report.htm
https://bankingjournal.aba.com/2024/11/fed-financial-stability-report-bank-system-remains-resilient/