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There’s a saying in the world of finance which is DON’T FIGHT THE FED. That’s because Jerome Powell has turned on infinite QE.
The federal reserve has been committed to buying up every asset class in order to prop up the economy and as a result of that and a few others things we will be discussing in today’s video, the stock market is now officially in bull market mode. The S&P500 just experienced the BEST 50 trading days of ALL time.
I like to know and follow the stock market not because it’s what drives my decisions as far as how I invest, but because it helps me manage my expectations and emotions so I know what’s coming next as a dividend investor.
First let’s take a look at the top 3 indexes of the stock market. S&P500, The Dow Jones, and the NASDAQ. These market indexes track the overall performance of the stock market but together they are NOT the stock market, they are not the economy – and they’re largely disconnected from main street.
The NASDAQ, is the second largest index by market cap with 10 trillion dollars worth of assets from about 3,500 stocks, it has hit an ALL TIME HIGH. It’s the reason why people are saying we are now in the new bull market.
But when asking yourself if you should invest because the indexes are doing great, I’m not so sure that this an accurate judgement of reality. The NASDAQ is heavily overrepresented by the tech sector, and the healthcare sector. I own a lot of healthcare, and some tech. But the tech sector makes up about 50% of the entire nasdaq index.
S&P500 on the other hand tracks the top 500 companies in the United States, experienced the BEST 50 trading days of all time SMASHING the last record set in 1982 when we gained 35.6%, this time, in 2020, we gained almost 40% at 39.6%.
The Dow Jones on the other hand, has only 30 companies and they aren’t necessarily the largest. It’s only about two thousand points away from hitting all time highs.
These prices of the top 3 indexes reflect what the United States will look like in about 12 – 18 months – perfection. That’s really what they’re pricing in right now. A swift vaccine, and the recovery of jobs, and not at all a second wave of the illness – which could come back to haunt us in the winter time and cause a second round of shutdowns which would very quickly wipe away all the market gains that we’ve seen thus far.
Let’s take a look at how the market and elections are connected. The elections, can’t predict what will happen to the stock market, but the stock market can act like a crystal ball for predicting who will become president.
It’s fascinating data from lplresearch – if the S&P500 index, the one that tracks the top 500 companies AKA VOO on Robinhood is GREEN 3 months in the time prior to a presidential election that happens in November 2020, the party that’s in the White House or the “incumbent party”, will most likely stay in the White House. But, if the stocks are down 3 months before an election, then it’s a potential sign for a change in power.
20 out of the past 23 last elections have been CORRECTLY predicted by the stock market 3 months prior. That means, there’s an 87% that we will know who the president will be starting around August to September time.
But here’s another REALITY: over 100,000 people have lost their lives due to the illness and 41 million people are unemployed which are levels that rival the Great Depression
t’s perfectly fair it’s fair to assume that all of this would lead to more job losses, difficulty reopening the economy because of fear which means a generally bad stock market right? Wrong. That’s not what happened. This is why I say whatever most people think will happen, almost always the opposite ends up happening.
Even Warren Buffet sold his airline stocks and lost himself and his investors billions of dollars, and all he had to do was follow through with his long term buy and hold strategy for just a little longer. Point being, no one can predict what will happen but the stock market is forward thinking, and it correctly predicted that the economy will recover. 2.5 million jobs were gained.
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