Stock market rise too crazy, European Central Bank warns of risk of pullback: asset valuations are too high, financial system may amplify volatility.

It has been understood that the European Central Bank is warning investors of the risk of a sudden and significant market correction, and investors are underestimating multiple threats including the conflict in Iran. The European Central Bank stated in its semi-annual "Financial Stability Review" on Wednesday that although there have been some adjustments in the market recently, asset prices are still historically high and the downward risks in geopolitical, fiscal, and macro-financial developments are being underestimated by the market. "This makes the market extremely prone to significant repricing," said Luis de Guindos, Vice President of the European Central Bank. This official, who has been responsible for financial stability affairs in the eurozone for eight years and will step down at the end of this month, pointed out that once there is market volatility, non-bank financial institutions may amplify the market's fluctuations. This statement is the latest warning signal issued by the European Central Bank: overly optimistic investors in the market are causing a disconnect between the financial markets and the real economy. Driven by the rise of tech stocks, global stock markets continued their record-breaking rally on Wednesday, but the overvaluation of these tech stocks is facing increasing scrutiny. The European Central Bank is currently struggling with the current energy supply shock, and Guindos reiterated that this shock will raise inflation and pose downside risks to economic growth. Although the market is concerned about the outlook for economic growth, investors still expect the European Central Bank to raise interest rates next month. Guindos stated that the conflict in the Middle East could exacerbate market volatility, posing challenges to debt repayment capacity in an environment of slowing economic growth and rising financing costs. It's not just the European Central Bank issuing warnings about market risks. Last month, Sarah Breeden, Deputy Governor of the Bank of England, said, "There are a lot of risks in the current market, but asset prices are at historic highs," and predicted that there would be an "adjustment" in the market at some point in the future. Since the conflict broke out, eurozone government bond yields have generally risen, reflecting the pricing of term premiums and renewed inflation concerns. This trend is putting pressure on public finances in many countries, as multiple governments are expanding investments in infrastructure and defense. The European Central Bank emphasizes that the eurozone sovereign bond market is still operating in an "orderly manner", with spreads remaining at low levels. However, the bank also stated that the increasing participation of price-sensitive investors such as hedge funds, as well as concerns about the fiscal sustainability of countries like the United States, could trigger or amplify sudden repricing of risk assets. The European Central Bank points out that in the context of these risks, the importance of controlling domestic fiscal spending is increasingly evident. The bank stated, "Any fiscal support measures should be temporary and targeted, to avoid pushing up sustained inflation pressures and further aggravating the burden on public finances." The European Central Bank, headquartered in Frankfurt, also highlighted financial stability risks in the private credit sector, although the exposure of European institutions is currently limited. The bank stated on Tuesday that in the event of losses, the impact on insurance companies and pension funds could be more severe than on banks.