The state of mind and views of market participants are tremendously
important for stock market prices for two primary reasons. Firstly,
“confidence” in the markets and the economy play an important balancing effect
in counteracting the ever-existing imbalances that gradually build up during
monetary expansion. “Sufficient” levels of confidence might hence serve to delay
inevitable market corrections. Secondly, shifts in investor psychology and
expectations can alter market developments, especially stock prices, noticeably
quicker than most fundamentals can.
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