New York Federal Reserve Building. Photo: Reuters/Keith Bedford

Investors may look at the market driver dujour – the Trump trade of this year, for instance – but central bank stimulus is still running in the background, helping maintain record high equity valuations along with minimal risk premiums.

As Michael Mackenzie writes for the Financial Times, with central banks adding US$1.1 trillion to the financial systems “liquidity punchbowl” this year alone, unwinding the stimulus carefully is extremely critical. But even then, the longer we wait, the greater the risk

“The longer it takes central banks to tighten, the greater risk of 1999 speculative mania,” analysts from Bank of America Merrill Lynch warn. They add that US growth stocks have exceeded the 2000 “tech bubble” peak compared with global value stocks.

Mackenzie laments that, “in the absence of fiscal stimulus from Donald Trump allied to signs of weaker global core inflation, the old playbook of owning big tech stocks and seeking yield through bonds is back in fashion.”