by Dr. Chris Kacher
Even with accelerating liquidity, falling rates, strong earnings + GDP, AI productivity, and supply-driven deflation, equities can still get hit if one of a few big regimes breaks with comments in brackets:
Macro & policy shocks
A re-acceleration in inflation (oil spike, supply shock, wage spiral) that forces central banks to pause cuts or guide back toward “higher for longer,” pushing real yields up again. [Countering this is supply-driven deflation]
A policy accident: disorderly QE/tightening pivot, political interference with central banks, or fiscal stress (failed auctions, widening credit spreads) that makes bond markets demand a higher risk premium. [Less likely as the trends remain bullish]
Growth and earnings deterioration
A hard-landing earnings reset where margins compress (rising labor/input costs) and revenue growth slows, so even with lower discount rates, forward EPS gets revised down sharply. [No signs of any major bottlenecks out to at least 1-2 years]
Liquidity & positioning risks
Crowded positioning in AI / mega-cap / long-duration: any disappointment (AI capex cuts, regulation, slower adoption) can trigger factor unwinds where the leaders drag the indices down despite macro easing.
A volatility shock (geopolitics, cyberattack, sudden rate spike) that causes VaR breaches, CTAs and risk-parity to de-risk, temporarily overwhelming the QE tailwind. [Japanese yen carry trade issue from a rate hike Dec 19 should be monitored]
Geopolitical & structural risks
Major geopolitical escalation (Taiwan, Middle East, Russia-NATO) that threatens supply chains, trade, or energy security, shifting flows into commodities and safe havens.
Regulatory/antitrust hits on the index heavyweights (AI, tech, platform giants) that compress multiples even if liquidity is abundant.
As long as (1) inflation doesn’t re-flare, (2) credit markets stay orderly, and (3) AI/earnings narratives hold, the path of least resistance is higher. The main derailers live in those three areas.
Markets climb a wall of worry since mainstream media can always make a case for why the fear seems real, yet FEAR also stands for false evidence appearing real.
Notice how any major pullbacks in the NASDAQ Composite were brief with the exception of slowing QE such as in 2018, 2022, and late 2023:
