Why does the market continue moving higher when the news we read seems to only provide reasons it shouldn’t be? Let’s review a few news pieces we’ve seen this week to understand how they apply to your portfolio.
More people employed and higher wages helps the stock market?
We continue to see a rise in employment numbers. Last week we saw the report that personal income rose .3% in August, creating a 4.7% increase in the past year. Employees save from their paychecks for their retirement typically in the stock market, increasing demand for stocks. A company’s stock has a set number of shares available. So as demand increases the supply becomes more scarce, pushing prices higher. You can read about this tailwind that Jim Cramer believes is helping to push the market higher.
“When jobs get created, more people can afford to put money away, so they save,” Cramer said. “And they save, in part, by investing in the stock market. As long as employment continues to grow, this process will keep playing out and it’s hugely positive for stocks.”
Corporate Stock Buybacks and Increased Company Mergers & Acquisitions help the stock market?
As the health of the economy has improved we have also seen an increase in deal making between companies through mergers and acquisitions. Companies can acquire another so they increase the products or services available to their customers. Or companies can expand their footprint in an area by merging with another business.
In addition, the tax changes of 2017 are starting to take effect now. Companies that had cash overseas due to where it was earned is being repatriated back to US dollars and those funds, in part, have been used to buy back some of their company stock.
With these actions, like increased employment, we see more demand for a company’s stock, and so the price increases. The market is a forward-looking indicator of where investors believe the economy may be heading in the future. But there are also supply and demand factors to consider that are helping to propel the market higher too.
Interest Rate Concerns brought some volatility this week
During the middle of this week we saw volatility brought on by fears about interest rate hikes ahead. We’ve known the Fed is on a path to increase interest rates, but remember rates are returning back to a “normal”. Rates have been so low, for so long, over the past decade, and with a healthy economy they need to increase to where they belong. Since it feels these rises are happening so quickly stocks are showing volatility as they digest the news.
Staying invested in the midst of news stories that give you reason to question your investments is important. If you aren’t sure if your investments are structured to weather as they should be for the long-term we are happy to help you consider any changes that may need made.
Wondering how this affects your investments? Schedule a call with Michelle and Steve to discuss your portfolio today.
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