Stock Market Sentiment and Compound Interest


On the day former United States President Donald Trump quietly left the White House in order to skip the inauguration of his successor, Wall Street investors were in a good mood. During after-hours trading on January 19, the eve of Inauguration Day, futures for benchmark indices such as the S&P 500 and the Dow Jones Industrial Average were sharply higher, thus allowing Wall Street to continue posting record-high trading sessions when President Joe Biden took office.

Market Sentiment on Inauguration Day

For seasoned stock traders, the market scenario on Inauguration Day was the same as it was four years ago. Whenever there is positive sentiment based on development making headlines, investors flock to equity securities. The inverse happens when political scandals erupt; investors abandon stocks and adopt a “flight-to-safety” strategy that often involves switching their capital towards gold.

Stocks are bound to fluctuate based on various factors

Wall Street investors can be busy as bees when it comes to trading on pure sentiment. They not only have to guess whether positive news will have an impact but also for how long. To a certain extent, this is a form of trying to time the market, and it does not work out every time. Stocks are bound to fluctuate based on various factors; market sentiment is just one of them.

Different Strategies for Different Investors

Compound interest investors who prefer to manage portfolios loaded with conservative instruments such as savings accounts and bonds do not have to worry about market sentiment. There is no reason to time the market when you know that your guaranteed rate of return is earning interest on interest. All you have to worry about is being able to make periodic contributions to your portfolio.

Financial regulators are known to raise interest rates

The only market sentiment factor that compounding investors have to monitor is a long period of market gains during a very active economy. Financial regulators are known to raise interest rates when the national economy heats up, and this could be a good time to shop around for high-yield savings accounts that offer greater rates of interest.