Irrational Exuberance is Taking Over the Stock Market

Irrational exuberance is a state of mania when stocks increase regardless of deteriorating fundamentals or uncertainty. When this happens, greed, overconfidence, and fear of missing out takes over the mind of investors. In this ColoradoBiz Magazine article, Kevin McNab explores how investors can guard against an inevitable drop in the markets when irrational exuberance takes over.

Over the summer, my 15-year old son became interested in stocks.  He has a small portfolio of stocks to watch in an account I set up for him as a minor. As an inquisitive teenager, he asks questions about the markets and investing – a lot of questions.  And as a wealth management advisor, I was eager to encourage his new interest. 

On the night of Jan. 3, the United States killed Iranian general and terrorist Qasem Soleimani on Iraqi soil.  After rising tension with Iran leading up to the death of Soleimani, experts could only guess to what extent Iran would retaliate.  The overwhelming consensus was they would retaliate, which created uncertainty across the world and with the markets.  Despite this uncertainty, the stock market increased the next day. When I came home from work that day, my son asked why the market had gone up given the events of the previous night. I explained, “The market doesn’t always make sense, but it will come back to equilibrium over time.” He accepted the answer and did not have any more questions.

On the night of Jan. 8, Iran retaliated sending dozens of missiles into an Iraqi base, home to American soldiers.  This led to greater uncertainty and instability, with questions posed about the possibility of a war with Iran.  The next day, the stock market climbed to a record high.  Once again, my son was waiting for me when I arrived home.  He asked, “Why did the market go up after Iran attacked us?”  My answer, “We are at the point of irrational exuberance.”…READ MORE!

Kevin McNab

This article is written by Kevin J. McNab. Kevin is President of ACE Wealth Partners, LLC and is a CFP®, ChFC®, and CRPC®. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. The views expressed in this blog post are as of the date of the posting, and are subject to change based on market and other conditions. This blog contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this blog post should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax or legal advice. If you would like investment, accounting, tax or legal advice, you should consult with your own financial advisors, accountants, or attorneys regarding your individual circumstances and needs. No advice may be rendered by ACE Wealth Partners, LLC unless a client service agreement is in place. If you have any questions regarding this Blog Post, please Contact Us. Please read our website DISCLOSURE carefully for additional information.