The stock market just broke again! Here’s what that means for investors
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Did you know, if you had invested in the stock market when it hit it’s March lows that you would have basically doubled your money? This is crazy considering that it takes approximately 10 years to do in the stock market, and we did it in just one year. That’s what they call the rule of 72, you take your yearly returns which is usually 7% and you divide 72 by the yearly return and you get something like 10.3 years – a neat little trick you can do to figure out how long it takes to double your money. The stock market was at roughly 2300 in March of 2020, and now it broke – over 4,000. Here’s what that means.
First let’s talk about interest rates vs inflation – not the most fun but it is if you’re an investing nerd like me. The two act as a counter balance to each other. When the pandemic hit, the central bankers got scared we would start hoarding cash – which is exactly what happened. In February of 2020 we had a personal saving rate of 8.3%. However by April that rate jumped to 33.7% – higher than it’s ever been as far back as 1960 (as far back as the chart shows: But here’s the thing – saving money is bad for the economy. So to help boost the economy during the pandemic Jerome Powell dropped interest rates. When you drop interest rates, you encourage growth but as a side effect asset prices go up – hence inflation. However not everyone agrees we have inflation – here’s the problem.
Some people only like to look at the consumer price index and reference the fact that consumer prices are relatively stable (chicken, eggs, milk, etc) therefore there is no inflation (or at least very little). Other people and investors like to look at asset prices and argue different. The pandemic created this perfect storm where asset prices are ballooning – this is bad because that’s when the poorest get left behind and essentially become indentured servants to their jobs because they’re forced to buy inflated assets and with their low incomes this forces them to keep their jobs for life and live paycheck to paycheck. My prediction is that April will bring one of the best months for the stock market in the entire year.
This prediction is supported by data from the VIX. The VIX index (redundant) is sort of like a fortune teller of the stock market for the next 30 days. As of April 1st, the VIX is at 17.33 and it’s going down gradually. That signals to people the market is stabilizing. The VIX does this by looking at the options market to see how much prices are fluctuating. The less the prices are fluctuating, the more stability, the lower the VIX score – people buy more, the market goes up. The opposite is also generally true. The VIX is also called the CBOE Volatility Index. CBOE is the Chicago Board Options Exchange.
Lastly, the stock market will most likely increase because of the American Jobs Plan which proposes to spend 2.25 trillion dollars over the next 8 years. The winners of this plan will be clean energy companies because President Biden will extend the tax credits for another 10 years and dedicate 174 billion to electric car rebates, and tax incentives.
From my portfolio stocks like WellTower and Ventas which are both healthcare REITs will benefit from the 400 billion dedicated to this space. AT&T and Verizon will grow from the billions of dollars toward reducing broadband costs. Home builders like Lennar Corporation and D.R. Horton which are some of the larger companies building new homes will see some benefit as well as slow and boring stocks like UNP or Union Pacific which is a railroad company. The losers are going to be dirty energy, stocks like Exxon Mobile and Chevron, stocks that of course I also have. Expect a growing stock market. There’s more greed to come.
*None of this is meant to be construed as investment advice, it’s for entertainment purposes only. Links above include affiliate commission or referrals. I’m part of an affiliate network and I receive compensation from partnering websites. The video is accurate as of the posting date but may not be accurate in the future.