Financial Confidence Blog

Why the Stock Market is Rising if the Economy is Falling?

Why the Stock Market can possibly grow in 2020

Let’s get straight to the point and quickly look at the 6 main reasons why the Stock Market might perform well in 2020 and possibly even grow. 

There were a lot of rumors and videos on Youtube lately (including this channel 🙂 warning us, that the Stock Market is about to crash very soon. And there are a lot of serious arguments behind these predictions. According to Warren Buffett’s indicator, the Stock Market is significantly overvalued. Unemployment rate is very high, business is loosing money, the debt is growing… 

But there are also many investors who actually see the Market differently and are very optimistic, even for 2020. Let’s look at the Positive arguments. And then you can decide for yourself, what it more likely to happen and what you are going to do about it.

Please remember that you always need to make your own financial decisions. Don’t be led by the random articles or Youtubers, even by such a great channel as this one 🙂 Good moment to Subscribe and hit the like button 🙂

1. The Market is very forward-looking

The first reason why the Stock Market is about to grow, not fall, is because the Market is very forward-looking. It means that the value of the stocks are more related to the future earnings then to the present situation. Investors are not looking just five or six months ahead, they are looking one or two years ahead, when the virus is probably under control already. And if the business is highly likely to come back to normal and grow, the value of the stock can also be stable and growing, even if currently the earnings are down. That’s what we see already with some Airline companies – they have huge losses, because nobody is traveling at the present moment. And even Warren Buffett has sold all his Airlines shares, but the prices of the Stocks increased in value lately.

2. The small business is not showing in the Stock Market indexes

The second reason is because the small business, which is hit hardest by the crisis, is not showing in the major stock market indexes like the Dow and the S&P 500. We all see how many small companies are closing forever, because they couldn’t survive the crisis, but it doesn’t really affect the Stock Market. It sounds very cruel, but it can even be something positive for the Market. Generally speaking, if one small company is closing – it means «one competitor less for the big company».

3. The crisis we have now didn’t happen because of the bubble in the economy

The third argument, why the Stock Market can perform well, is because the crisis we have now didn’t happen because of the bubble in the economy. The crisis of 2008 took place mostly because we had a housing bubble and excesses built up in the economy. But now it is rather an external shocking factor that caused the downturn. We will definitely return to the healthy economy in a couple of years. It will be even stronger, because it will be tested by the crisis. And, as we’ve said earlier, the Stock Market is looking into the future.

4. Strong companies will benefit from this crisis

Another argument some investors have for the Stock Market to grow in 2020 is that big strong companies, which have the biggest part of the Stock Market money, will actually benefit from this crisis.  As someone said, COVID-19 mostly kills old and weak people, who have other deceases. The same thing is happening in business – COVID-19 crisis mostly kills the weak companies with debts and other issues. Strong companies like Microsoft, Apple, Amazon, Google, Facebook, will actually benefit and become even bigger. And since these fewer companies have the biggest part of the Stock Market money, it means the Market will be alright.

5. The country will do needful to prevent the stock Market Crash.

The fifth positive argument is that the country will do the needful to prevent the Stock Market crash. Basically it comes to the idea that if you can predict something, you can also avoid it. If you know your car is broken and it can lead to an accident – you will not be driving it. As simple as that. If we can clearly see the risk of Market crash – we can do everything it takes to prevent it, because nobody wants it.

As we know, the Great Depression of 1930-s has happened mostly because of the late reaction of the Government. But now in 2020 we see that the needful steps were taken immediately. Federal Reserve stepped in and started to buy companies’ debts, printed money, and provided the Stimulus checks to support people. All these actions helped to calm the Market. Investors don’t make emotional decisions, which can in turn cause the crash. Looks like we’ve learned the lesson from the past and we know what to do before it becomes too late.

6. Wealthy investors stayed in the Market

The argument number six is that wealthy investors like Warren Buffet, Howard Marks and others stayed in the Market. Even though they sold SOME of their shares, which seemed the most unstable, they kept the majority of their stocks. The biggest investors mostly stick to the classical approach – «buy and hold», they are investing long-term.

The fact that Warren Buffet sold some of his shares can possibly tell us that he is simply increasing his cash capital and is preparing for big acquisitions and investments. This can indicate that he is expecting the Stock prices to go down, and that he wants to be able to buy at the good price. But it doesn’t necessarily speak of the entire Market. The main idea of this argument is that none of the big investors has sold all their stocks. If they would expect the Market to crash, they would probably sell more. But we don’t see this happening. Many investors continue to buy, and this can be a good sign of the potential Market growth.

What do you think?

Considering all the positive and the negative arguments, what is your opinion? Do you think the Market will grow or fall in 2020? Leave a comment down below, subscribe to my channel, hit the like button to support it. I appreciate you stayed until now, it means you are taking the Investing seriously. I wish you a great week and see you soon in the next post / video.

Leave a Reply

Your email address will not be published. Required fields are marked *