Fed Induced Market Rally Won't Last

Another wild day for the markets – with the Dow surging on the heels of yesterday's 600 plus point gain. Investors are betting that the Fed won’t raise interest rates at its next meeting in September.

Nonetheless, judging by the massive selling earlier in the week, Wall Street may need to wake up to the realization that stocks are too richly valued. Buckle up. The volatility is unlikely to end anytime soon.

Here's where we stand: the U.S. economy is barely growing, earnings growth from corporate America is being achieved increasingly through creative accounting (aka financial engineering) rather than top line sales growth and our global economy is anemic — at best. China's growth is a shadow of its former self and Europe is still reeling from the aftershocks of its debt crisis. Latin America is dependent on the sale of commodities for the health of its economies — but, with oil at less than $40 a barrel, and the rest of the commodity space also weakening, Latin American nations are feeling the pressure.

In sum? There's not a whole lot to get excited about these days and definitely a lot to worry about.

Stocks have been on a tear — defying bleak U.S. economic fundamentals for more than six years. Unable to earn returns in traditional investments, U.S. investors' appetite for risk has grown to unsupported levels. As such, no one is valuing companies for what they're really worth, but rather, what they're worth with the backing of the Fed.

Investors are like drug users on heroin, and the Fed is their dealer.

Weakness in the Chinese economy spells trouble for other developing economies that are dependent on commodity prices. If oil continues its plunge (and given the glut of supply and lack of demand, it likely will) then, how much will Latin American countries like Brazil and Mexico suffer? The concern is, they may soon be caught struggling to pay their bills. If so, it could lead to a debt crisis in that region.

Here at home, the Fed needs to get rates off zero, but with all the risk on the horizon Yellen also needs to calm the Fed-addicted markets. She recognizes the danger of a Fed-induced asset bubble — and has cited her concern about valuations in the stock market. Even Alan Greenspan recognizes the dangers of low rates — recently telling me that history proves rates will and must go up . . . and, when they do, it's "not good" for stocks.

So, what's the Fed ultimately going to do?

We'll find out at the Fed's next meeting announcement Sept. 17. In the meantime, get ready for a wild ride.

This is an excerpt from my new USA TODAY column. Read the entire piece here: https://www.usatoday.com/story/money/columnist/2015/08/25/trish-regan-market-turmoil/32361073/

Trish Regan anchors The Intelligence Report with Trish Regan daily at 2 p.m. ET onFox Business Network. Follow her on Twitter @Trish_Regan.