Fear of Missing Out or Fear of a Correction – What is Driving the Market?

Over the weekend on X, there was a lot of talk about a bubble in the U.S. market. The problem with bubbles is that you never really know for sure whether it is a bubble, and even if you do know, betting against a bubble is usually financial suicide. Most of those calling it a bubble have missed the rally and are simply trying to comfort themselves.

The rally is driven by real macro factors — mainly by growth expectations. In April, growth was hit by Trump’s tariffs, but after he softened them, the market recovered and the rally continued.

The second half of 2025 has been driven by the Fed — at first the market was stagnant due to the more hawkish stance in July and weak data in August, but then the Fed struck a dovish tone, which supported growth and the rally.

Druckenmiller once said: “Earnings don’t move the overall market; the Federal Reserve does. Focus on the central banks and liquidity flows. Most people in the market look at earnings and conventional metrics. Liquidity moves markets.” The Federal Reserve alone can throw the economy into a recession or pull it out. That’s a very powerful force in the markets, and right now it’s supporting the economy and markets. Don’t fight the Fed.

Problems begin when the economy overheats, and then the Fed’s support fades as the central bank starts working against the market. That’s when we might see corrections (and potentially even a crash)… If we see strong U.S. data (especially with the upcoming jobs report next week), we might finally get a decent correction.

When inflation starts becoming a serious issue, then we can expect a significant market correction — or even a bear market, if the Federal Reserve shifts toward raising rates. Until then, however, any declines are more likely to present buying opportunities at lower levels.

A commonly cited case from the dot-com bubble is when Stanley Druckenmiller – despite knowing the market was overvalued – gave in to the euphoria and bought near the top. In the end, that decision cost him billions. The story is used as a warning about the potential risks during similar rallies.

The difference now is that back then the Fed had already started raising rates, whereas in the current situation the central bank is still supporting the economy with cuts and signals for a flexible policy. Whether this will lead to a bubble is unclear, but for now, the Federal Reserve is not opposing the markets — which limits the risk of sharp declines. In such an environment, some investors choose to “pour fuel on the fire” — as George Soros puts it — when they sense a bubble forming.