“We do not target the level of stock prices. That is not an appropriate thing for us to do.”
Fed Chair Janet Yellen
It’s the equivalent of social passing or grading on a curve. While the stock market is breaking new records, its recent performance is not a reflection of reality.
He said the recent rally has been driven by institutional investors covering shorts (i.e., hedging bets that stock prices would fall), and not by bullish individual investors. In fact, he noted that outflows in mutual funds show that individual investors are becoming squeamish about stock prices.
Institutional investors were short going into Brexit, but are recalibrating their portfolios, Fink said, given that the Brexit aftershock has not been as long-lasting as expected. While some may have been concerned about the economic impact of the United Kingdom voting to leave the European Union, ultimately its impact on markets was muted by the knowledge that Brexit would most likely keep the Fed from increasing interest rates anytime this year.