US Federal Reserve Chairman Jerome Powell speaks during a press conference after a Federal Open Market Committee meeting in Washington, DC on July 31, 2019. - The US Federal Reserve cut the benchmark lending rate on Wednesday for the first time in more than a decade, moving to stimulate the economy after a year of sustained pressure from President Donald Trump. The target for the federal funds rate is now 2.0-2.25 percent, 25 basis points lower, and the central bank vowed to "act as appropriate to sustain the expansion." (Photo by ANDREW CABALLERO-REYNOLDS / AFP)
PHOTO: ANDREW CABALLERO-REYNOLDS/AFP/AFP/Getty Images
US Federal Reserve Chairman Jerome Powell speaks during a press conference after a Federal Open Market Committee meeting in Washington, DC on July 31, 2019. - The US Federal Reserve cut the benchmark lending rate on Wednesday for the first time in more than a decade, moving to stimulate the economy after a year of sustained pressure from President Donald Trump. The target for the federal funds rate is now 2.0-2.25 percent, 25 basis points lower, and the central bank vowed to "act as appropriate to sustain the expansion." (Photo by ANDREW CABALLERO-REYNOLDS / AFP)
Now playing
00:50
Federal Reserve announces rate cut
An activist wears a "Fight For $15" T-shirt during a news conference prior to a vote on the Raise the Wage Act July 18, 2019 at the U.S. Capitol in Washington, DC. The legislation would raise the federal minimum wage from $7.25 to $15 by 2025.  (Photo by Alex Wong/Getty Images)
PHOTO: Alex Wong/Getty Images
An activist wears a "Fight For $15" T-shirt during a news conference prior to a vote on the Raise the Wage Act July 18, 2019 at the U.S. Capitol in Washington, DC. The legislation would raise the federal minimum wage from $7.25 to $15 by 2025. (Photo by Alex Wong/Getty Images)
Now playing
02:59
How to make sense of the minimum wage debate
Now playing
02:53
A living wage made a world of difference to him
People walk by a closed restaurant in Rockefeller Center on the last Sunday before Christmas on December 20, 2020 in New York City. Rockefeller Center, where the annual Christmas tree is displayed among other holiday attractions, has far less crowds this year and numerous restrictions due to the ongoing COVID-19 pandemic. New York City has seen a slow uptick in COVID hospitalizations over the last few weeks but is still far below the numbers witnessed in the spring. (Photo by Spencer Platt/Getty Images)
PHOTO: Spencer Platt/Getty Images
People walk by a closed restaurant in Rockefeller Center on the last Sunday before Christmas on December 20, 2020 in New York City. Rockefeller Center, where the annual Christmas tree is displayed among other holiday attractions, has far less crowds this year and numerous restrictions due to the ongoing COVID-19 pandemic. New York City has seen a slow uptick in COVID hospitalizations over the last few weeks but is still far below the numbers witnessed in the spring. (Photo by Spencer Platt/Getty Images)
Now playing
02:19
Pain in the US job market: Another 730,000 filed first-time claims
WASHINGTON, DC - FEBRUARY 01: U.S. President Joe Biden (Center R) and Vice President Kamala Harris (Center L) meet with 10 Republican senators, including Mitt Romney (R-UT), Bill Cassidy (R-LA) and Susan Collins (R-ME), in the Oval Office at the White House February 01, 2021 in Washington, DC. The senators requested a meeting with Biden to propose a scaled-back $618 billion stimulus plan in response to the $1.9 trillion coronavirus relief package Biden is currently pushing in Congress. (Photo by Doug Mills-Pool/Getty Images)
PHOTO: Pool/Getty Images North America/Getty Images
WASHINGTON, DC - FEBRUARY 01: U.S. President Joe Biden (Center R) and Vice President Kamala Harris (Center L) meet with 10 Republican senators, including Mitt Romney (R-UT), Bill Cassidy (R-LA) and Susan Collins (R-ME), in the Oval Office at the White House February 01, 2021 in Washington, DC. The senators requested a meeting with Biden to propose a scaled-back $618 billion stimulus plan in response to the $1.9 trillion coronavirus relief package Biden is currently pushing in Congress. (Photo by Doug Mills-Pool/Getty Images)
Now playing
02:08
Zandi: Stimulus plan doesn't do enough for the most in need
Now playing
01:57
Fed chief downplays inflation concerns
Paul Krugman Amanpour Democratic Primary Economy_00012322.jpg
Paul Krugman Amanpour Democratic Primary Economy_00012322.jpg
Now playing
03:19
Economist: Biden's $1.9 trillion stimulus plan is not too large
Now playing
03:19
Christine Lagarde: Global stimulus is needed now
Now playing
02:42
A challenging year for women: Millions are out of work
People walk by a closed restaurant in Rockefeller Center on the last Sunday before Christmas on December 20, 2020 in New York City. Rockefeller Center, where the annual Christmas tree is displayed among other holiday attractions, has far less crowds this year and numerous restrictions due to the ongoing COVID-19 pandemic. New York City has seen a slow uptick in COVID hospitalizations over the last few weeks but is still far below the numbers witnessed in the spring. (Photo by Spencer Platt/Getty Images)
PHOTO: Spencer Platt/Getty Images
People walk by a closed restaurant in Rockefeller Center on the last Sunday before Christmas on December 20, 2020 in New York City. Rockefeller Center, where the annual Christmas tree is displayed among other holiday attractions, has far less crowds this year and numerous restrictions due to the ongoing COVID-19 pandemic. New York City has seen a slow uptick in COVID hospitalizations over the last few weeks but is still far below the numbers witnessed in the spring. (Photo by Spencer Platt/Getty Images)
Now playing
03:12
These owners had to close their iconic restaurants during the pandemic
Now playing
04:52
ICC warns vaccine nationalism will damage global economy
Now playing
04:04
San Francisco Fed chief: Inequality is bad for the economy
PHOTO: CNN
Now playing
01:47
Yellen: No reason we should suffer through a long, slow recovery
PHOTO: CBS Evening News with Norah O'Donnell
Now playing
03:29
Biden doesn't believe minimum wage hike will survive relief bill
Now playing
01:00
Path cleared for first Black woman to lead WTO
U.S. President Joe Biden signs executive actions in the Oval Office of the White House on January 28, 2021 in Washington, DC. President Biden signed a series of executive actions Thursday afternoon aimed at expanding access to health care, including re-opening enrollment for health care offered through the federal marketplace created under the Affordable Care Act.
PHOTO: Doug Mills/Pool/Getty Images
U.S. President Joe Biden signs executive actions in the Oval Office of the White House on January 28, 2021 in Washington, DC. President Biden signed a series of executive actions Thursday afternoon aimed at expanding access to health care, including re-opening enrollment for health care offered through the federal marketplace created under the Affordable Care Act.
Now playing
02:43
US economy saw worst year in 2020 since 1946

Editor’s Note: Sven Henrich is founder and lead market strategist at NorthmanTrader. The views expressed in this commentary are his own.

Last month US markets once again hit a little-known but highly relevant ceiling which has spelled market trouble numerous times in the recent past, most famously during the major market bubble bursts in 2000 and 2007. Investors should recall what happened then, take note and brace themselves for the possible implications.

What is that ceiling? It’s when overall stock market capitalization vs. GDP reaches a point historically disconnected from the underlying size of the economy. We are in such a period again, having recently reached a ratio of stock values to GDP of 145%.

The biggest bubbles in most of our lifetimes were the 2000 tech bubble, the 2007 real estate bubble and the monstrosity we are witnessing now: the cheap money bubble. This new bubble has been induced by central banks’ artificially low interest rates which are creating the TINA effect, which stands for “there is no alternative.” This effect is found in markets where hungry investors are forced to buy high risk assets like stocks because other assets offer worse returns.

Bubbles occur when excess optimism about the future pushes the value of asset prices beyond what the underlying economy actually produces. They are a result of unrealistic future growth and valuation expectations.

All three bubbles have done something unique. They have vastly accelerated asset prices above their historical mean. In 2000 and 2007, these bubbles reached extreme ratio peaks of 146% and 137% in the US, respectively, before they burst, correcting into bear markets.

Today’s cheap money bubble has arrived with full vengeance on the heels of $20 trillion in global central bank intervention through quantitative easing and a historic collapse in bond yields, which has forced money into equities.

The bull case for the market to continue its rise has been presented like this: When the Fed cuts interest rates, you must buy stocks. That’s it. It’s not earnings. It’s not growth. Indeed, Goldman Sachs recently raised its target price for the S&P 500 while simultaneously cutting earnings and growth forecasts, primarily based on multiple expansion expectations due to the Fed cutting interest rates.

But look closely at what has happened over the past 18 months. We have kept hitting that 140% to 150% ceiling. In January 2018, US markets reached nearly 150% market cap to GDP and stocks got punished with a 10% correction. From last September to October, US markets hit 147% market cap to GDP and stocks got hit with a 20% correction. And last month, we hit 145% market cap to GDP and stocks have since begun selling off again.

How far and for how long can stock markets stay this far disconnected from the underlying size of the economy? History says not for very long.

A similar valuation wall can be observed across the globe.

Each time global market capitalizations cross the 110% mark, markets get volatile. Global market cap to GDP peaked in in January 2018 just north of 110% again before reverting.

There is no market history that supports stock market capitalizations above 145% of GDP for an extended period of time.

There is also no history that suggests unemployment can stay this low (near a 50-year low) for an extended period of time.

And there certainly is no history that suggests that both can be maintained for an extended period of time concurrently.

I don’t know what fair value is in this financially distorted world, but the historic mean is significantly lower. It’s only truthful to acknowledge that central banks have contributed to an artificial excess in the market cap to GDP ratio.

This is a central bank bubble. To be buying stocks here based on the Fed rate cut is to believe central banks can maintain asset values above the underlying size of the economy and can do so at a historically unsustainable level in a period of slowing growth.