There is a perverse feature of share markets right now that disturbs Fidelity International investment director Tom Stevenson.
It's how stocks move wildly based on every word and tone that the heads of central banks like the Reserve Bank of Australia and the US Federal Reserve utter.
"The Fed and its counterparts in Europe and Japan long ago stopped being simply the referees but became the game's star players," Stevenson said in the UK's The Telegraph.
"This is not how it should be."
Stock markets swaying on any sort of hint about interest rate intentions might not seem so controversial to younger investors, but it wasn't always this way.
When stocks markets became addicted to low rates
The first signs of it emerged a quarter of a century ago when there was a Russian debt crisis and the collapse of the infamous Long-Term Capital Management hedge fund.
"[It] set the stage for Alan Greenspan to adopt the role of financial market 'maestro', riding to the rescue whenever things got sticky for investors."
The global financial crisis in the late 2000s really took the stock market's interest rate sensitivity to a new level though.
"This is when bad news started to be welcomed by investors," said Stevenson.
"They came to realise that the Fed could be relied on to respond, Pavlov-style, to a slowing economy, gummed up financial plumbing or just simply a falling stock market."
A put option is a financial contract that provides returns when something goes wrong. Thus the willingness of central banks to rescue stock markets became known as the "Fed Put".
Unfortunately, equity markets became addicted to this for the entirety of the 2010s. Bad news sent stocks soaring on the possibility that interest rates would be cut — or remain at near zero.
"Sluggish growth and rolling crises in Eurozone sovereign debt or the Chinese currency or a negative shock such as Brexit provided central banks with the cover to keep interest rates on the floor," said Stevenson.
"If you owned assets or needed to borrow money, you were happy."
Bad news was good news.
The current rally might be premature, but stay invested
Then in 2020, the massive impact of COVID-19 came along.
According to Stevenson, "massive government interference" with lockdowns and fiscal stimulus killed supply and supersized demand at the same time.
Inflation then took flight and Russia's invasion of Ukraine just "poured fuel on an already smouldering fire".
So the logic is now flipped from the pre-pandemic era.
"Now investors view good news as bad because they fear that better-than-expected economic data will provide central banks with the justification to keep rates higher for longer," said Stevenson.
"Fearful of letting inflation spin out of control on their watch, this is their default position. Understandably so."
In Stevenson's opinion, there is much good news around the globe at the moment. The jobs market remains "red hot" in the US and growth in Europe has hit a nine-month high.
So the new year market rally might prove premature. Volatility will rule until "the market, economy and corporate earnings become better aligned".
But all this good news might mean that we may have passed the bottom.
"The earnings recession could be milder than feared this year and the debate about whether we should expect a soft or a hard landing may be moot.
"Perhaps it really will be no landing at all."
And the ultimate irony for those with a full portfolio?
"What seems like bad news for investors — they turned up too early for the recovery — could turn out to be good news after all," said Stevenson.
"A year of volatile but ultimately flat markets may not feel very exciting but it will provide plenty of opportunities to make sure you are fully invested when the rally finally comes along."
