Why the Stock Market is Hitting Record Highs in a Struggling Economy
The economy is in the dumps. Tens of millions are unemployed. Expanded unemployment benefits have expired, leaving them unable to pay bills. Politicians are deadlocked over stimulus relief.
So why is the stock market doing so well? Seriously, the S&P 500 stock index just set an all-time record, beating out its previous high. What gives?
Why the Market Is Good — Even in Bad Times
Here’s why Wall Street is so out of sync with Main Street:
1. Small businesses are struggling, but they aren’t represented on stock indexes.
When you hear the stock market had a good or bad day, they’re talking about the major stock indexes like the Dow Jones Industrial Average, the S&P 500 and NASDAQ. These track the stock prices of America’s biggest corporations.
“But guess who’s not represented in a stock index? Your local baker. Your favorite watering hole. The guy who cuts your hair. Your child’s preschool,” says Robin Hartill, a certified financial planner and a senior editor and financial advice columnist at The Penny Hoarder. “Small businesses have laid off more people than larger companies.”
2. The stock market only tells us what investors think will happen.
The stock market isn’t a snapshot of where we’re at. It just tells us where investors think we’re heading. Soaring stock prices show that investors think companies can make money moving forward.
3. Investors think we’ll have a quick V-shaped recovery.
States have reopened. There’s optimism about a coronavirus vaccine. Many investors think those factors will give us a V-shaped recovery, meaning the economy will shoot right back up after crashing.
4. Amazon, Apple and other tech giants mask reality.
Amazon, Apple, Microsoft, Facebook and Google parent company Alphabet account for more than 20% of the S&P 500.
“That means when stock prices for these companies soar, it can mask the struggles of smaller companies whose stock prices haven’t recovered much,” Hartill says.
What’s a Typical Investor Supposed to Do?
“The smartest thing you can do is to budget a certain amount to automatically invest each month, regardless of what the market is doing,” Hartill advises.
One way to do that: Use an investment app that offers an easy, automatic way to start investing.
We like Stash because it lets you choose from hundreds of stocks and funds to build your own investment portfolio.
But it makes it simple by breaking them down into categories based on your personal goals. Want to invest conservatively right now? Totally get it! Want to dip in with moderate or aggressive risk? Do what you feel.
Plus, with Stash, you’re able to invest in fractions of shares, which means you can invest in funds you wouldn’t normally be able to afford, like Amazon, Google or Apple, for as little as $1.* The best part? When these companies profit, so can you.
If you sign up now (it takes two minutes), Stash will give you $5 after you add $5 to your invest account. Subscription plans start at $1 a month.**
*For Securities priced over $1,000, the purchase of fractional shares starts at $0.05.
**You’ll also bear the standard fees and expenses reflected in the pricing of the ETFs in your account, plus fees for various ancillary services charged by Stash and the custodian.
The Penny Hoarder is a Paid Affiliate/partner of Stash. Investment advisory services offered by Stash Investments LLC, an SEC-registered investment adviser. This material has been distributed for informational and educational purposes only, and is not intended as investment, legal, accounting or tax advice. Investing involves risk.