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Famous strategist David Roche warns that the Fed could blow up the current one "bubble" of the markets

The S&P 500 posted its strongest week since February on Friday, closing at a new all-time high on Monday. Gains persist on the New York Stock Exchange despite the rapid spread of the highly contagious new variant and lingering concerns about whether the Federal Reserve will be forced to reduce its unprecedented stimulus program.

Veteran investor David Roche told CNBC that current valuations are a “bubble”. The Fed recently surprised markets with a slightly aggressive turn, raising its inflation expectations and advancing its interest rate hike program to signal two hikes in 2023.

Roche, president of investment firm Independent Strategy, called current valuations a “bubble.” “These things always come to an end, and it is very difficult to say what the catalyst that will bring them to an end. It could be another variant of covid, at the moment I think it is quite unlikely, “said the expert.

“The most likely catalyst from my point of view is that the Fed will actually be forced to stop giving a double message and start having to be quite serious about additional monetary stimulus and financing weak budgets,” he said. Roche.

While some Fed officials have indicated the need to move the conversation forward about reducing the central bank’s asset purchase program, Chairman Jerome Powell spoke to calm the markets by suggesting that the projections be taken “very calmly.” .

Roche suggested that the spread of the delta variant is unlikely to be the trigger for retaining the accumulated savings for consumers and for markets to recede.

“Regarding fiscal stimulus, the combination of excess savings in both the housing sector and the corporate sector, plus the fact that there will be more stimulus in the future, is likely to keep people quite optimistic about growth. Roche stated.

“Markets look like a bubble, but it won’t last forever”

“Markets look incredibly hot, like in a bubble, but they cannot and will not last forever,” says the strategist.

Along with the unprecedented fiscal stimulus already in place to support the economy during the pandemic, a bipartisan group of lawmakers struck a deal on infrastructure spending on Thursday. The frame will include 579,000 million in new expenses to improve the country’s highways, bridges and broadband.

“Can all this be altered by consumer fear? The answer is yes, it could, if in particular this new variant, the delta variant, really takes over in the United States. This variant in developed markets has really hit. most strongly in the UK and outside of the UK I would say it is still under control so I still don’t see it as a major threat to consumers spending their excess savings, “Roche added.

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