[jfengel]

The liquidity doesn't actually have to "go somewhere". One option is for it to disappear.

A number of indicators suggest that the market is overpriced. Some of that is "real" money being sucked into the market and away from other assets, but the market multiplies that money. When somebody pays $40 for a stock that was $39, every single owner now believes that they have a stock that has gone up by 2.5%. They can can use margin features to buy even more stock without bringing any of their own money, causing more inflation.

There are lots of ways that can end, but when they do, that liquidity vaporizes. The stock that was $40 is now $30. Where did the money go? Nowhere. It just vanished.

It can continue as long as people believe it will. It usually fails as a cascade effect: somebody somewhere chickens out, and then a few more get scared, and then it becomes an avalanche. Anything could be that first snowflake, though an end to the Fed treating the market as if it's in a crisis when it's at record highs seems like a good start. The punch bowl has been out for a long, long time -- because they keep imagining it's going to "trickle down" into consumers. It doesn't.