Ep. 42: The Stock Market & 6 Things to Monitor
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Welcome back to Money Matters where I help guide you in becoming a better and more confident investor. Through digesting financial news and blogs 6 things stand out from the rest that is going to matter for the stock market that we as investors going forward must keep on our radar, and in this video I want to go through what they are.
First off is Interest Rates. Interest rates are very important when it comes to the economy and going back 40 years interest rates have essentially gone from double digits to all-time lows to nothing. And that concerns me, as they have never been this low before. This plays hugely into the asset allocation for investors as the income that was once derived from the fixed income side of the portfolio may not be yielding the same results which might make those who are more risk-averse having to take on more risk to replace those falling yields.
The second point is the continuation of inequality in this country where the top 10% owns 70% of the wealth in the United States, and close to 90% of the stocks that are held according to Chartered Financial Analyst Ben Carlson. The argument of Gross Domestic Product always comes to mind in the sense that, if you have one person who is 1000x more wealthy than another person, are they consuming 1000x more goods and services? Do millionaires and billionaires purchase 1000X toothbrushes, milk, etc… Of course, they don't. This is going to continue to be a problem going forward.
The third point is Automated Investing. With the rise of personal finance apps, Robo-advisors, auto-enrollment on the 401k side, there have never been fewer barriers to entry for individuals to invest than there is today. Which is great! You shouldn’t have to pay a large fee and go in and talk with someone and fill out a huge list of paperwork anytime you want to invest your hard-earned money. But with a larger amount of money being invested, and rebalance, all with a simple click of a mouse, markets have never been this systematized. And this has to have some impact going forward. Which I feel we are already seeing with the intra-day volatility.
The fourth point is to pay attention to fiscal stimulus. The gov’t has never pumped this much money into the economy, and with the results they’ve had, it’s not likely to slow down. Politicians, for the most part, are short-sided. They want to juice the stats and get reelected. Period. Every four years they argue and promise the moon. Proposing policies that will increase GDP and jobs for the years to come. Most don’t pan out. But with the Great Financial Crisis, and the newly Corona Virus they know they can not only help us recover from a recession but almost stop it in its tracks through the push of a button. And that button being government spending. So what’s to stop any other politicians from continuing to push that button going forward?
The fifth talking point is Inflation is always being discussed in parallel to all this gov’t spending. And the gov’t debt isn’t what concerns me, because at the end of the day that’s never getting fully paid back anyway. But inflation could be a result. While I wasn’t doing much investing back in the late ’70s and early 80s, people certainly remember the double-digit inflation back then. Inflation doesn’t overly concern me for stock investors, as stocks help hedge inflation, but for those bond investors out there inflation could make their investment environment even worse as it would erode the value of their future income payments.
Lastly the Federal Reserve. The current Chairman, Jerome Powell, learned from Ben Bernanke’s actions back in ’08 and wanted to make sure they stayed ahead of the storm if you will and in that poured trillions of dollars into the economy to keep capital flowing, markets functioning, and thoughts of depression off the table. Markets have never rebounded so quickly. My concern is that investors, especially new investors could come to expect this type of behavior. This could misplace their risk-tolerance in them thinking investing is pretty straight forward, I buy in when stocks are down and if the markets go into the red quickly then the gov’t will turn the stimulus pumps on and all will be well. Those who have been long-term investors simply know this is not the case. IF there’s anything I can do to help you get your financial life in order please reach out to me via email, or give me a call as I’m happy to help. Thank you for tuning into this week’s episode of Money Matters, and giving your finances the attention that they deserve.
