The economy is growing, the markets are up, stocks are flirting with record highs… The good times are back for investors it seems, but are they really?

Investors have the wind at their back once again. Everything seems to be moving in the right direction and the global economy is doing great, with strong growth in Asia and robust recovery signs from the U.S. economy. Even in Europe we can see the first indications of a revival. As a consequence, investors are buying stocks with renewed confidence and the most important stock markets across the globe are listed at historical record levels.

‘It’s party time on the trading floor’ is a phrase you would hear in professional circles, but last week the party was abruptly ended by the organization that started it: the Fed. Janet Yellen, chair of the board at the Federal Reserve, openly expressed her dissatisfaction with the party atmosphere on the financial markets. According to Yellen, the valuations on the stock market are ‘very high’ and this could potentially lead to trouble. The statement surprised many investors and Yellen’s words sparked a sell-off; we hadn’t seen one that big in months.

Investors should not be so shocked, however, since Janet Yellen had already raised this issue of valuations in the past. She specifically referred to excessive valuations in certain segments of the market last summer. At that time, Yellen had her sights set on the biotechnology sector and rightly so. All of this underlines that Yellen is a different type of chair than her predecessor, Ben Bernanke, who never saw danger coming. Not even when the real estate bubble burst in 2007.

What Yellen is doing, in fact, is preparing the markets for the inevitable: a rate hike. The short term rate of the Fed (officially, the Federal Funds Rate) has been listed at 0% since the financial crisis. Never before in history it happened that the Fed lowered its short-term interest rate to zero percent, let alone for more than 6 years. The long-term consequences of this policy are anybody’s guess, which is why Yellen wants to normalize rates as soon as possible.