Our World Seems to Be on Fire, but the Stock Market Goes Higher. Why?

Unbelievable, never thought it could happen, unspeakable, tumultuous, racial and economic discontent.

So many exasperating headlines, protests, riots, looting, and damage we viewed and unfortunately witnessed this past week. Civil unrest, destruction, and untold amounts of damage tragically took place over the peaceful need for protest. Our already weak, disabled, and closed cities have been feeling the worst of the pandemic, negating the hopes of recovery now possibly delayed or derailed by the unrest.

There are several issues affecting our country and our economy. Unemployment is at the highest point in decades is one of the most severe. More than 40 million people are unemployed and the numbers continue to increase. Obviously, unemployment has negative effects on the economy. States as well as the federal government have been slow in getting unemployment checks out and the unemployed feel as though they are mired in quicksand.

So why is the stock market booming?

The current economy is not what drives the stock market. The big disconnect between the market and the economy is because the stock market is forward looking about 12 to 18 months.

The stock market is accelerating for three specific reasons. The first reason is many analysts, economists, and investors believe that the market bottom occurred on March 23rd of this year and that markets are rising since that point in time.

Many of the economic forecasts are favorable. Right now money is very cheap. Extraordinary low interest rates have led to rising mortgage applications and refinancing and lower loan costs for businesses. Low rates have also led to investors looking to the stock market to earn more from dividends than interest income. Also, as states continue to open business activity it is perceived that the economy is picking up in a variety of different industries and investors want to get ahead of these opportunities.

But I personally believe the main driver of why the stock market is booming is the unprecedented amount of stimulus money being projected into the financial system creating an enormous amount of liquidity. The $3 trillion that is being deposited into the economy is surely having an igniting effect on the stock market. The market should continue with this upside strength until the government slows the injection of stimulus dollars.

We will all be very happy when we open our May investment statements. But let’s not all be cavalier and think that there are no consequences with this untamed market. There will be quite a few surprises, not all good, lurking around the next bend. Y

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