Why is the Stock Market Still Rising? - Invest Now or Wait? | Summary and Q&A

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May 1, 2020
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Learn to Invest - Investors Grow
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Why is the Stock Market Still Rising? - Invest Now or Wait?

TL;DR

The stock market appears to be disconnected from the US economy despite negative GDP numbers and a high number of jobless claims.

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Key Insights

  • 🦡 The first quarter GDP numbers were worse than expected, and the second quarter is projected to be even worse due to the lockdown.
  • 🎚️ Jobless claims have reached unprecedented levels, indicating a significant impact on the economy.
  • ❓ The stock market's recovery may be attributed to investor expectations of government intervention and a gradual economic rebound.
  • ⚾ The stock market's performance is based on expectations, and as long as those expectations are met, the market may continue to move higher.
  • 👾 The future trajectory of the stock market remains uncertain, as it is dependent on various factors such as the duration of the lockdown and the pace of economic recovery.
  • 🥅 Investors should align their investment decisions with their individual goals and risk tolerance.
  • 😘 The stock market may experience another pullback, offering potential investment opportunities for those looking to purchase stocks at lower prices.

Questions & Answers

Q: Why does the stock market seem to be disconnected from the current troubles in the US economy?

The stock market's performance is forward-looking and is based on investor expectations. If investors believe that the government will intervene and that the economy will gradually recover, they may continue to invest despite negative economic indicators.

Q: What is the expected impact of the lockdown on the US economy in the second quarter?

Estimates suggest that the second quarter GDP numbers could be as low as negative 35%. The full impact will depend on how long the lockdown lasts and how quickly the economy can reopen.

Q: Will the stock market keep going higher or will it pull back to its previous lows?

It is difficult to predict the future trajectory of the stock market. If the gradual reopening of the economy continues as expected and jobs begin to recover, the stock market may gradually move higher. However, any major negative developments, such as a resurgence of the coronavirus or unexpected job losses, could derail the market and lead to a crash.

Q: Should investors wait for another stock market crash before investing?

The answer depends on individual investment goals. Long-term investors or those who practice dollar-cost averaging may continue to invest consistently regardless of market levels. However, those looking for strategic investment opportunities may choose to wait for a potential pullback to invest in individual stocks at more favorable prices.

Summary & Key Takeaways

  • The first quarter GDP of the United States was at a negative 4.8%, slightly worse than expected due to the lockdown caused by the coronavirus. It is expected that the second quarter GDP numbers will be even worse.

  • Jobless claims have reached record levels, with approximately 30 million jobs lost. The gradual recovery of these jobs will determine the length of the economic recovery.

  • While the stock market initially dropped by 33% due to the economic impact of the coronavirus, it has since seen a gradual recovery of about 30%. This could be attributed to investor expectations of government intervention and a gradual economic rebound.

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