Why stock markets need to cool down further?

Stock markets like everything else in life are cyclical in nature. 

Stock markets like everything else in life are cyclical in nature.
It never goes constantly in one direction and it has to follow the cycle and come back to where it started in order to move higher. If you look at the history, you will find that most asset classes move in tandem .So if commodities, energy, real estate and prices of almost all things rise then stock markets and bond markets also would rise and if the prices of underlying commodities start falling then it leads to the fall of stock and bond markets.

✏️The reason is simple as the increasing prices of commodities lead to the increasing revenues and profits of the companies which in turn lead to increase in stock prices of the companies. Since increased money supply leads to higher available liquidity, it boosts the investors’ confidence and demand for various assets. But in life there can’t be a never ending party and most of the times if party goes on for long then end is not happy but abrupt. The stock market rally which started in June 2022 during the start of Russia-Ukraine war went up in one direction and it also has to end abruptly in line with the probable ending of Russia- Ukraine war. 

✏️Besides, money is limited resources and not infinite and so ultimately demand also can’t be infinite and so price rally in all the segments also has to come to an end. Russia-Ukraine war had boosted the prices of all commodities and energy which led to the superlative earnings growth of the big corporates and conglomerates. This earnings boost percolated down to the masses and common people also which started investing money in the stock market. This had led to the one way rally in stock market as the stock prices kept on rising. 

✏️As the prices of commodities, energy and other items started declining, so the revenues and profits of the companies also started declining. This is resulting in the stock prices and market decline. 

     So even though the government may try to artificially boost demand and sentiments by injecting liquidity and increasing money supply by reducing the interest rates but its effect would be visible only with a time lag of 9-12 months. Because the froth and asset price bubble has to be burst first. This means that markets still have some path to go down which in my view would be anything from 10%-15% decline before it can stabilize.