Despite, more than a year since the onset of the first cases of this horrific pandemic, and the impact on global economic conditions, especially in terms of employment, business closures and other factors , the price of many stocks, and all related stock markets has increased significantly! While some may claim, or in fact believe, that this indicates the strength of the economy as a whole, it is important to recognize that there is often little or no relationship between stock prices and the health of the market. economy (and its impacts, on people every day)! With that in mind, this article will attempt, briefly, to examine, examine, examine and discuss 5 factors that could contribute to what we have witnessed.
1. Low yields: With the record low interest rates and the corresponding low rate of return (dividends and / or interest) on bank deposits, US Treasury vehicles, and corporate and municipal bonds, stocks are profiting, because, there is much less choice, in terms of where you can invest and get any kind of return. While for those borrowing money at low rates is desirable, for those looking for returns it is not! In addition, it makes it easier to borrow funds, on margin, and creates greater demand (and, often, a corresponding rise in prices) for stocks!
2. 2017 tax reform: Although President Trump and those Republicans, pushing – hard for this legislation, claimed that it would primarily benefit the working class, the real impact appears – to be – it has favored the wealthiest and most affluent individuals. large companies, mainly! This led to higher corporate profits because they paid less in taxes. Wouldn’t that make sense, would it create a rise in stock prices?
3.Company profit: The companies of many companies have grown significantly, due to the above, from two factors! When investors consider, value – profits, or, PER ratios, that done, the shares of many companies go up!
4. Increase the number / percentage of investors: Statistically, more people are involved in investing in stocks today than in the past. The combination of the use of mutual funds, hedge funds, day-trading / traders, and online trading programs, which allow more people to participate, has created more demand, and often times. creates rising prices!
5. Greed: As we have seen recently, when some have taken advantage of the internet, to create a market, for lower quality stocks, using some of the behavior / actions of hedge funds, against them (or, in their interest), this greed and speculation have created higher prices, in some cases.
There are many factors associated with rising stock prices, but it would be wise to realize that investing in stocks (no matter what quality, strategy, etc.) is never guaranteed! Will you commit to being a smarter investor?