See You Later $1.7 Trillion!
/The coronavirus has brought on less activity around the world, which naturally equates to less consumption because people are staying close to home.
If people are not buying things then the companies who rely on the cash from people buying their products or services will make less money during this time of isolation, causing investors to sell and stock prices to plummet during this uncertainty.
Before these two days of price declines, the stock markets have been in a strong 11-year bull market (price increases on stocks) and now there is this deflation in value.
Why has there not been declines on the markets before this virus?
Check out this quick 9 min interview, compliments of Financial Post and then see Dollar Dame’s take below.
FP interviews David Rosenberg, economist and investment strategist.
The four major reasons the stock markets have been strong and stable or over-valued are:
#1. China (along with other foreign $) is investing their money in the US stock markets.
Foreign private holdings of U.S. stocks hit a record high of $7.7 trillion as of July, the most recent data available, according to Treasury Department figures as of Nov 7, 2019.
#2. Companies sitting on cash are/were buying back shares (the more buyers = price is stable or goes up on their stock).
Goldman an investment firm in the US expects companies to be the biggest buyer of stocks helping to fuel the bull market (increasing prices), spending $470 billion in 2020 through buybacks and M&A activity wrote Pipa Stevens in October 2019.
This is until the corona virus arrived and is causing less global activity so companies may need that cash for other things. But this was a reason before the virus of the strong market.
#3. Investors are more balanced (half or more in cash and half or less in stocks) in their investment portfolio since the 2008/9 stock market bear visit (prices dropped more than 30%).
During the past three years, assets in money market funds have grown by about $1 trillion, according to the Lipper division of Thomson Reuters, as cited by the Journal. Money market fund balances are now at their highest level in about a decade.
#4. ETF investing – “lazy investor” approach to stock markets means less volatility (moves up and down on market) because investors are usually about low cost and low maintenance; investing to hold for a long period of time.
As the stock market surges to new record highs, an increasingly popular way to invest has passed a new milestone of its own, with assets under management (AUM) now passing the $4 trillion mark for U.S.-based ETF sponsors, per a report by ETF.com.
So, what do all these numbers mean?
Lets’ compare, the latest value I could find on the total US stock market valuation is $34 trillion. Valuation is adding up the price of all the companies listed in the US (what investors are willing to pay for the company).
The U.S. stock market is currently $34 trillion, compared to the rest of the world’s $44 trillion capitalization, as of April 2018, according to NASDAQ.
It seems like a drop in the ocean when you look at each point individually to compare with the total valuation of $34 trillion.
Over two days the US market has lost about $1.7 trillion, according to analyst Howard Silverblatt.
These daily declines can be overwhelming to one psychologically, especially, if one is fully invested in stocks and has no cash.
I will create a recording on how one can be logical during these extreme times of volatility and how to assess the next move, as we never know how exactly the future will unfold short-term.
Keep an eye out for it over the next day or two and thank you for staying subscribed!
XO$,
Dollar Dame
P.S. please feel free to share this with a loved one who may want to understand more behind the scenes of the stock market.
Sources:
Photo by Devon Janse van Rensburg on Unsplash
#3. https://www.investopedia.com/how-usd3-4-trillion-in-sideline-cash-will-boost-markets-4775453
#4. https://www.investopedia.com/etf-assets-cross-usd4-trillion-milestone-4692488
https://www.cnbc.com/2019/12/24/global-stock-markets-gained-17-trillion-in-value-in-2019.html
