I suspect that it’s a lot of people thinking that the other guy must know something and failing to understand the concept of “buy low, sell high”. Most people buy high.
Well, I tend to care when what he seems to be doing would be so harmful to the economy. Trade for instance…he seems to be a monkey at the controls of a (manually flown) 747 on final approach in a severe thunderstorm. MAYBE he will hit the right buttons and pull the stick in just such a way that the plane will land ok…but I think you’d need the proverbial million monkeys with a million 747’s to get that outcome.
Artificially low interest rates
Inflation.
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(snip)1. I don’t see where ‘almost twice’ comes from. If I pull up the the US S&P 500 index ETF IVV and the Vanguard European Stock Index ETF the latter has outpaced the former by just a few % points since November 2016
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Year to date the Vanguard Total Stock Market Index (VTSAX) is up 13.95%. Year to date the Vanguard European Stock Index (VEUSX) is up 24.5%. That’s a pretty significant difference. Sure, go back three years and they get a lot closer, but if the point is that President Trump’s policies are having an effect you have to explain why his policies are having a lot more effect on Euro stocks than US stocks.
And the claim that Trump’s policies started having a positive effect on the stock market three months before he took office, and long before anyone had any idea what he would propose doesn’t really pass the smell test.
You’re getting caught up in politics. That shows by your emphasis on ‘Trump’, and Trump’s policies. I didn’t talk about ‘Trump’s policies’ but the effect of a corporate tax rate cut which is positive for stocks by a very simple mechanism.
And one party’s platform proposed a big corporate tax rate cut. The idea ‘no one had any idea’ is what doesn’t pass the ‘smell test’. Every informed investor knew. Therefore nothing at all special about the day or monthl that party’s president happened to be sworn in v now when we still don’t actually know what will happen exactly with their tax bill. The market started reacting to the actually new information, which was that the party proposing the tax cut won the WH while retaining (albeit slim) majorities in both houses of Congress. And again since it isn’t certain they’ll achieve their proposal (or how much of it) you can expect more positive impact if they follow through more on it, and a sell off if they follow through less or fail altogether.
Because the effect is really simple. If a publicly traded company makes $1 before tax with a 35% tax rate that’s $0.65 to the investor. At 20% it’s $0.80. More profit to investor, higher stock price. The fact other stock markets went up doesn’t disprove that obvious effect. All else (in the world) equal, which it never is. But that doesn’t mean it’s plausible to say investors don’t care about such an obvious effect.
And again on stock comparison you’re taking the wrong period, and counting in $'s when European stocks haven’t been up as much in their own currencies. And like I said, Chinese stock market is up more like 50%, that would have been a better example. But an example which still doesn’t mean jacking up the % of profits that go to US investors has no effect on the US market: it obviously does. That one factor does, also doesn’t mean other factors aren’t at play in both directions.
What’s the highest and lowest the Dow Jones can possibly reach?
1 million and zero?
GQ-type question.
I think these are key points. Low interest rates naturally drive money to the stock market, though if a stock correction does come, the 2% return on safe paper will look good in hindsight. But meanwhile, though many expect a stock price correction sooner or later, no one wants to bet on “sooner” and end up being the foolish Chicken Little.
The low yield on 10-year Treasuries has no precedent except for the 1940’s and early 50’s. That was a time of very high employment and MUCH higher GDP growth than we see today. The P/E ratio of the S&P 500 is now a whopping 25.5, compared with 6.6 on Jan 1, 1949. :eek:
Either sounds abysmal… 0 would mean the country had defaulted on all debt, all stocks were completely worthless, and probably some kind of military junta was forming to try to restore order to what’s left of the country…
1 million would likely mean the income disparity went from the current standard of 1 family having 40% of the wealth to 10 families having 99.99% of the wealth.
Yes, but not for you. Or for me. Productivity gains are increasingly divergent from wages. That means the workers who are supposedly producing all this extra wealth aren’t getting the gain. When policies are driving wealth out of the hands of consumers who earned it, and who need to be spending it to keep the economy moving, this is not a sustainable situation.
Not sure how this comparison is supposed to work, but in historical terms, you’d be hard pressed to find comparable situations that didn’t precede a revolution or world war. Either way, back to my earlier point, this kind of situation sits entirely outside the imagination of investment forecasters who have a vested interest in telling themselves that this house of cards can never collapse.
Famous last words of every bubble… “IT’S DIFFERENT THIS TIME!”
EPI promulgates the stagnation myth by using different measures of inflation for productivity and income, by not counting all income, and by ignoring demographic changes. Never mind that the myth fails the very obvious sniff test of comparing life back whenever vs today for anyone who was alive during the decades in question.
I see this as the key question of the OP. Put another way - How can the stock market keep going up when Trump is such a chaos agent?
My take, which is implicit in the OP, is - The stock market likes predictability.
In a very weird way, Trump being chaotic is predictable. Each individual item of chaos is chaotic, but overall the level of chaos is constant (high).
Yes, it would.
The U.S. government has not really done anything of consequence that would affect the stock market, good or bad. The chaos we’re hearing about is largely confined to the White House; Trump has not yet been able to do anything to actually damage the economy in a substantive way. Traders on Wall Street don’t care if he’s an asshole to Gold Star families or if he fired James Comey. That has nothing to do with business.
What chaos has there been to BUSINESS? Nothing at all. Tax rates have not changed. Obamacare wasn’t repealed. The Fed hasn’t hiked interest rates big time. There hasn’t been any substantial change in government spending, regulatory policy, or basically anything of substance. No new wars have broken out. No industries have collapsed.
If he torpedoes NAFTA, things will start to shake.
Yes, I would expect killing NAFTA or any other trade agreements to cause some disruption.
There’s no way to know this.
Artificial how? Other than the Fed funds rate, AFAIK all other rates (government and private) are set in the open market. What is keeping Treasury rates down is entities buying them at low rates.
What do you think the proper rate is?
You wouldn’t be willing to explain your reasoning in detail, would you?
I would guess that there is a tracking between P/E and spec (as opposed to holding or investment). But does rising P/E drive up spec or does increasing spec drive up P/E?
It really seems to come down to, if you have a bunch of money sitting around, what do you do with it?
Putting it in the bank doesn’t do you much good, the banks don’t want it, they are already sitting on trillions of dollars they can’t lend. There is only so much entrepreneurial or direct investment that one can do.
So, the rest ends up in the stock market, driving up indices and P/E ratios.
It’s just like any form of inflation, you have more demand than supply. There is a large demand for investment products, but a very small supply, so those investments get bidded up more and more.
There is no more wealth in a 23k DOW than there was when the DOW was 20k, just more money.
Simple answer - the chaos bill is still in the mail. He’s only been president for 9 months. Things feel chaotic, but most of what we perceive as chaos is a president breaking social norms on social media. The administration hasn’t yet been tested by a serious crisis. The consequences of his true executive blunders will take a little more time to ripen - e.g. we know it will eventually hurt us to have a gutted, demoralized State Department led by emasculated Secretary of State, but we don’t know when or how large that cost is going to be, or when it will come due.
Reasonable people could understandably believe we’ll dodge these bullets forever, or that there’s no sense in waiting for the other shoe to drop. I personally am taking the Chicken Little approach, having mostly shifted to safe-harbor investments shortly after inauguration. I know I’m getting out too early to enjoy this little rally, but hard experience tells me it’s better than waiting too late.