What exactly do you think is going on in the stock market? Many may argue that as we finish up this week, stock prices have risen for the first time since April.
However, on the surface, this seems extremely surprising from the uncertainties of the elections, delays, and threats of lawsuits on post-election results. Regardless, if you take a more in-depth look into it, you’d get a clearer picture of why the stock market is doing so great.
So, what does this current spike in the market means for the future of the market, saving money, investing, personal finance, and building wealth? Today we’d talk about events in the stock market and if these entities can reach their next all-time high anytime soon.
How Did We Get Here?
We have the stock market behaving like it always has by doing the exact opposite for what you think I will. That’s pretty much not a new thing for long-term investors but in hindsight, here’s what happens. Between September 29 and October 7, 2020, SNP 500 was reached its all-time high.
On Monday, October 12, 2020, it peaked as high as over $3,500 and driven down to $3,310 on October 29, 2020, by a mixture of new illness cases, stalemate on Stimulus, and election uncertainties.
With all these irregularities, traders and investors were forced to settle with the worst-case scenarios as fear takes over. We can conclude that the stock market reacts by behaving as a pendulum.
If the market value is right in the middle, the market will swing too far in the direction of fear as people brace for the worse and sell-off. As expected, it then swings back to the ‘everything is fine’ category as traders realize that the market is going up, and greed kicks in.
With investors fearing the worst right now over the new lockdown restrictions and zero Stimulus insight, the market sold off while we saw some of the worse days in months.
Of course, these sudden reversals caused people to panic, and as we entered the election week, investors remain clueless as to how the new regulations affected their portfolios. However, what many feared to be a turbulent ride has turned into a massive upswing in the stock market.
Here’s What’s Happening
Between November 2, and November 5, 2020, there’s been again from 1.2% to 2.2%. Even with these numbers, these are still one of the best days in months. From an investment standpoint, many businesses are concerned about what changes to their policies could affect the stock market. In this case, any change in the status quo would result in uncertainty. When things stay the same, we often know what to expect and can plan to invest accordingly.
However, with a lot of ifs on the table resulting from the illness cases and decisions depending on the outcome of the Presidency, Senate, and House policies, there are too many unknowns.
This makes the stock market reacts accordingly, likewise with lots of swing areas. Regardless of the fragile state of the economy, the stock market is impacted by the post-election status. Judging from the current election results, investors are optimistic about the positive change because any measures would need by-pardoning support to pass through.
With the foreseen predictions of the Republicans retaining the Senate, we’d most likely expect similar tax policies and regulations. As a result of these uncertainties and a divided congress as this, it’s unlikely that we’d see higher taxes, strict business regulations, and higher capital gain tax.
All of these were weighing on investors who couldn’t plan for this uncertainty. So, it’s good to keep our fingers crossed and expect a congress that favors businesses.
Here’s the Most Interesting Part!
Let’s take a look at how the stock market has historically performed with a split congress. This will help us see historically if one side is more profitable than the other.
Historically again, the highest returns have come from a Democratic president with a House and Senate split between parties. That administration had an average annual return of 13.6%. A closer runner up to that was another Democratic president and Republican congress at 13.0% average annual return.
Ultimately, what we can narrow down from this is that a divided congress is excellent for the stock market. Truthfully, that’s the only information that should interest us; how to make more money!
If you’re more concerned about stock market returns, it is more opportunistic to pay attention to what’s happening in the House and Senate than it is the President. Clearly, we can see that at the end of the day, the Presidency has less control over the stock market than we think.
These current differences between the House and Senate are the reasons why we’ve seen the stock market go up so high in recent times. A more transparent outcome is beginning to take shape that would favor businesses, lower taxation, and fewer regulations to worry about.
That’s causing people to feel more comfortable with throwing their investments into the stock market than ever before. In simple terms, a higher percentage are buying than selling their stocks.
Conclusion
To take out massive profits from the current all-time highs of the market, you have to keep buying, keep investing long-term, and do not panic. Also, you mustn’t sit on the sidelines waiting for this swing-out either. Waiting for the market to drop from an all-time high level would make you lose out on great opportunities to buy.
Simply get into the habit of buying consistently and avoid timing the market. Buy those stocks today!
