Melt Up Mania Brewing Ahead of This Week's Fed Meeting?
Signs of a Rare Melt Up Intensifying
The tremors suggesting an extremely rare "melt up" event could be taking shape are intensifying ahead of this week's hugely anticipated Fed meeting. Friday's 6% Nasdaq surge capped its best week of 2024, fueled by aggressive rate cut expectations as inflation cools.
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What Is a Melt Up?
A phenomenon where asset prices become completely untethered from fundamentals, driven by psychological forces like FOMO and greed. Triple-digit percentage gains become common even among firms with poor financials before reality returns.
The Common Accelerant
In prior melt up cycles like the late 1990s tech bubble, the accelerant was excessive Fed stimulus. Aggressive rate cuts feed the "Buy Everything" mentality, divorcing valuations from reality as corporations gorge on cheap debt for buybacks.
The Writing on the Wall
Other signals flashing now:
- Frenzied speculation in meme stocks, crypto, AI
- Stocks exhibiting classic melt up patterns
- Record low equity allocations signal cash awaiting deployment
- Overly bullish/euphoric sentiment online
This Week's Pivotal Fed Decision
With the Fed all but certain to cut rates, the stage is set for a melt up mania if easing goes too far. A 50bps cut followed by pause is one scenario, but any hint of open-ended cuts could be the accelerant.
Disciplined risk management with pre-defined profit taking rules is vital if a melt up fully materializes. Volatility is likely as markets digest the outcome.
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