What Is a Melt-Up?

A melt-up is a sustained and often unexpected improvement in the investment performance of an asset or asset class, driven partly by a stampede of investor🐷s who don’t want to miss out on its rise, rather than by fundamental improvements in the economy.༒

Gains that a melt-up creates are considered to be unreliable in🔯dications of the direction the market is ultimately headed. Melt-ups often precede meltdowns.

Understanding Melt-Ups and Nuances of Economic ඣIndicators

Ignoring melt-ups and meltdowns and instead focusing on fundamental factors begins with an understanding of economic indicators. Economic indicators come in the forms of 澳洲幸运5官方开奖结果体彩网:leading indicators and 澳洲幸运5官方开奖结果体彩网:lagging indicators. These are all forms of 澳洲幸运5官方开奖结果体彩网:economic indicators, which investors follow to forecast the direction of the stock market andꦐ overall health of the U.S. eco🌠nomy.

Leading indicators are factors that will shift before the economy starts to follow a particular pattern. For example, the Consum🐲er Confidence Index (CCI) is a leading indicator that reflects consumer perceptions and attitud൲es. Are they spending freely? Do they feel like they have less cash to work with? A rise or fall of this index is a strong indication of the future level of consumer spending, which accounts for 70% of the economy.

Additional leading indicators include the 澳洲幸运5官方开奖结果体彩网:Durable Goods Report (DGR), developed from a monthly survey of heavy manufacturers, and the Purchasing Managers Index (PMI), another survey-based indicator that economists watch to predict 澳洲幸运5官方开奖结果体彩网:gross domestic product (GDP) growth.

Lagging indicators shift only after the economy has begun to follow a particular pattern. These are often technical indicators that trail the price movements of their 澳洲幸运5官方开奖结果体彩网:underlying assets. Certain examples of lagging indicators are a 澳洲幸运5官方开奖结果体彩网:moving average 澳洲幸运5官方开奖结果体彩网:crossover and a series of bond defaults.

Melt-Ups and Fundamental Investing

Many investors attempt to avoid melt-ups and their impact on investor emotions when placing bets by instead focusing on the fundamentals of companies. 澳洲幸运5官方开奖结果体彩网:Warren Buffett, for example, is a famous value investor, who made his fortune by careful attention to companies’ financial statements, even amid economic turmoil. He focused on corporate value and price: Was the company on solid financial footing? How experienced and reliable was the management? And was it overpriced or underpriced? These questions often help investors focus on 澳洲幸运5官方开奖结果体彩网:intrinsic value over hype.

Example of Melt-Ups

Financial analysts saw the run-up in the stock market in early 2010 as a possible melt-up, because 澳洲幸运5官方开奖结果体彩网:unemployment rates continued to be high, both residential and c🌸ommercial real estate values continued to suffer, and retail investors continued to take money out of stocks.

More examples of melt-ups occurred during the 澳洲幸运5官方开奖结果体彩网:Great Depression, when the stock market rose and fell several times despite a geneꦍrally weak economy. According to research by wealth managers, stocks fell by more than 80% from 1929 to 1932. But they posted returns of more than 90% in July and August of 1932, and the trend continued over the next six months.