5 explanations for the growth of the stock market!
Although some people experience stellar results while others discover far less profitable experiences, the American stock market is an important component of the overall US economy! What the specific indices mean and represent and the reasons why they go up or down is often somewhat complicated. For more than the last 6 years (before the pandemic), we have witnessed unprecedented growth in stock performance. President Donald Trump often seems to point to these performances as proof of his superior management of the broader economy. However, many studies indicate, alone, that about one-third of Americans control (in terms of stock ownership) more than two-thirds of all the stocks they own. Furthermore, detailed studies of many aspects of economic related areas show that the so-called wonderful Trump economy is parallel to and a continuation of the last 3 years of the Obama administration. With that in mind, this article will briefly attempt to consider, examine, review and discuss 5 possible explanations for the strength and apparent growth of the stock market.
1. Few options for investments/invest: With this extended duration/length, all-time lows (or close to), interest rates, other investment possibilities/vehicles, have lost much of their appeal, because bond and bank interest/dividend rates are so low. The Federal Reserve has also recently indicated that there are no plans to increase these rates and changed their guidelines for assessing inflationary risks/responses etc. As a result, investing in stocks has obviously gained its appeal!
2. Capital Gains Tax Advantage: Gains/gains, from stock gains, known as capital gains, are treated favorably by our tax code. This obviously makes these vehicles even more popular for some!
3. Look for growth, over time: Historically, investing in quality stocks, for the long term, has been a great way to hedge against inflation. This is very different from looking for speculation and quick money!
Four. Some smoke and mirrors: Beware of smoke and mirrors, especially when dealing with politicians playing politics, for their personal/political agenda/gain and/or self interest! There is a significant difference between a strong stock market and the overall economy, including jobs, job quality, inflation, and overall economic strength!
5. Risk/reward, and search for higher/better profits: The reality is that stocks go up and down, and a smart investor considers the overall risk/reward and your personal risk: tolerance, patience, 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 correctly and wisely, investing in them is a smart/wise component of the overall personal financial plan. However, the stock market is often not an indicator of the overall economy, nor of its strengths and weaknesses.