When stuff gets inflated like this, no one should be surprised when it gets deflated.

By Wolf Richter for WOLF STREET.

Sure, France is dealing with a complicated political situation, including snap elections, that might alter the political landscape. That’s what elections are for.

But why did French stocks spike 20.7% in the 7 months of Rate Cut Mania? What kind of crazy show was this? And not just in France.

The French blue-chip stock index, the CAC 40, dropped by 2.7% today, and by 4.6% over the past two days. Over the past six trading days, the index lost 6.7%, and it’s down a whopping stunning mindboggling 8.9% from its all-time high on May 15.

I mean, how can stocks be allowed to drop???

And so a lot of headlines cropped up today. The Guardian: “French stock market plummets amid fears of far right election win.” The FT: “French stocks suffer worst week since 2022 over fears of populist win.” Bloomberg today: “French Stocks See $200 Billion Wipeout…”

You get the idea: In France, stocks are sinking though everyone knew that during inflationary times, stocks can never sink, and that they’re the best hedge against inflation or whatever, and that rates are going to get cut, and already got cut by the ECB on June 6, and that therefore stocks would just keep on booming because of rate cuts, inflation, and all.

So now that theory has been obviated by events, shock is spreading through the media that had hyped this stuff all along?

But wait a minute. The CAC 40 had spiked by 20.7% (1,415 points) in less than seven months, from the end of October to its all-time high on May 15 of 8,240, a result of this epic Rate-Cut Mania that had gripped Europe as well. So now, the ECB has cut once, and stocks are sagging.

But wait another minute. The “plunge” of French stocks:

• Barely wiped out the gains this year! The CAC down just 0.5% year-to-date.
• Wiped out only half (737 points) of the seven-month Rate-Cut Mania spike (1,415 points), instead of all of it plus some.
• Took the index only back to where it had first been in April 2023, instead of carving out multi-year lows.

In other words, that’s not even a real sell-off just yet, just an 8.9% dip from the all-time high. It just seems like a big deal because during Rate-Cut Mania, and even before, the brains of investors and the media got fried by the illusion that stocks can never drop.

And now that French stocks dropped 8.9% from their all-time high of Rate-Cut Mania, it’s a scary thing that reality is allowed to seep through the veneer? ECB, please do something about this fiasco?

Stock markets in general – especially in the US – have gone completely nuts in recent years, and then spectacularly nuts during Rate-Cut Mania, and the media hyped it and promoted it, and now that there’s this little unwind of a spike, the handwringing starts? I mean, come on. When stuff gets inflated like this, no one should be surprised that it gets deflated.

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