Why Have Stock Prices, Gone Up, So Much?: 5 Factors2 min read
Despite, over a year, from the onset of the first – cases, of this horrific pandemic, and, the impact on the overall, economic conditions, especially, in terms of employment, business closings, and other factors, the price of many stocks, and the overall, related stock exchanges, has risen, significantly! Although, some claim, or, actually, believe, this indicates, the strength of the overall economy, it is important to recognize, there, often, is little – to – no relationship, between stock prices, and the health of the economy (and its impacts, on every – day, people)! With, that in mind, this article will attempt to, briefly, consider, examine, review, and discuss, 5 factors, which might contribute, to what, we’ve witnessed.
1. Low yields: With, the record – low, interest rates, and, the corresponding, low rate – of – return (dividends, and/ or, interest), on bank deposits, U.S. Treasury vehicles, and corporate and municipal bonds, stocks benefit, because, there are far – fewer choices, in terms of, where one can invest, and get any type of return. While, for those, borrowing money, low rates, are desirable, for those, seeking yields, it is not! In addition, it makes it easier, to borrow funds, on – margin, and, creates greater demand (and, often, corresponding, rise – in – prices), for stocks!
2. 2017 Tax Reform: Although, President Trump, and those Republicans, pushing – hardest, for this legislation, claimed, it would mostly benefit the working class, the actual impact, seems – to – be, it favored the wealthiest individuals, and largest corporations, predominantly! This led to, higher corporate profits, because they paid less, in taxes. Doesn’t it make sense, it would create, rising stock prices?
3.Corporate Profits: Many corporations’ corporations rose, significantly, because of the above, two factors! When investors, consider, price – earnings, or, P/E ratios, this makes, many companies’ stocks rise!
4. Increase number/ percentage of investors: Statistically, more individuals, are involved, in investing in stocks, today, than, in the past. The combination of using Mutual Funds, Hedge Funds, day – trading/ traders, and online trading programs, which permit more people, to participate, has created, more demand, and that, often, creates rising prices!
5. Greed: As, we recently, witnessed, when, some took advantage of the Internet, to make a market, for lesser quality stocks, by using some of the hedge funds’ behaviors/ actions, against – them (or, in their interests), this greed, and speculation, has created, higher prices, in some instances.
There are many factors, related, to rising stock prices, but, it would be wise, to realize, stock investing (no matter, how great, one’s strategy, etc) is never – guaranteed! Will you commit to being a wiser investor?