Although some people experience excellent results, while others discover much less profitable experiences, the US stock market, is a major component of the US economy in general! What particular indexes mean and represent, and the reasons you push them, up or down, can often be rather complicated! For over the past 6 years (before the pandemic), we have seen unprecedented growth in stock performance. President Donald Trump often seems to point to these performances, as evidence, of his superior handling of macroeconomics. Several studies, however, indicate that only about one-third of Americans control (in terms of stock ownership) more than two-thirds of the shares owned. In addition, detailed studies of many aspects of the economy, the so-called wonderful Trump economy, appear to be parallel, and a continuation of the last three years of the Obama administration. With that in mind, this article will attempt to, briefly, examine, examine, review, and discuss 5 possible explanations for the stock market’s apparent strength and growth.
1. Few investment/investment options: With this prolonged duration / length, of record – low (or almost), interest rates, and other investment possibilities / instruments, have lost much of their attractiveness, because rates of interest on bonds and banks / dividends are very low! The Fed has also indicated, recently, that there are no plans to raise these rates, and has changed its guidance, for assessing inflationary risks/responses, etc. As a result, stock investing has obviously gained, oomph!
2. Capital Gains Tax Advantage: Profits/gains, from stock gains, otherwise known as capital gains, are treated favorably by our tax code. This obviously makes these compounds more popular for some!
3. Seeks to grow over time: Historically, investing in quality stocks has been, for the long term, a great way to protect yourself from inflation! This is very different from looking for speculation and fast payouts!
4. Some smoke and mirrors: Beware of smoke and mirrors, especially when it comes to politicians, playing politics, for their own personal/political agenda/gain, and/or for their own self-interest! There is a big difference between a strong stock market and a macro economy which includes jobs, quality of jobs, inflation and overall economic strength!
5. Risk/return, striving for higher/better profits: The truth is that stocks go up and down, and a wise investor considers, the overall risk/return, his personal risk tolerance, patience and understanding, and how it fits into the overall economic plan (personal financial planning).
Historically, stock prices, and the stock market in general, fluctuate! Over time, if used properly and wisely, investing in these matters, is a smart/wise component of one’s general and personal financial plan! However, the stock market is, more often than not, an indicator of the economy as a whole, nor its strengths and weaknesses!