By Neil Szczepanski, Tradeology: The Fifth Insight
As we are all aware the markets have been on a tare lately. The Nasdaq has regained much of its losses from the start of the pandemic. This has left many wondering if we are in a bull market again. Here are three reasons why this might be happening.
Reason #1 – Stimulus money being invested in the markets
Some people who received stimulus money and are still fortunate enough to have a job working from home without many shopping options, could be investing it into the stock market. New brokerage accounts are opening. Institutional investors have neutral positions or are bearish. When new retail investors come in with a bullish directional bias it forces the markets up and can squeeze the institutional investors to get out of their bearish positions (short squeeze) forcing them to buy to get out. This further drives the markets up.
Reason #2 – The Federal Reserve has our back
The Federal Reserve (FED) has lowered interest rates to zero percent. They are in the bond market buying bonds. They are implementing an aggressive Quantitative Easing policy unlike anything the world has ever seen. Investors may see some comfort in many of the sectors, like the banking industry for example.
Reason #3 – Maybe the Pandemic is not about the Pandemic
Maybe investors have decided the pandemic will just run its course and are continuing to buy stocks just like prior to the pandemic, they may feel the markets have a safety net in place with the FED backing more fiscal stimulus and more congressional action.
Whether you are an experienced investor or new to investing and trading, you have to pay attention to why the markets might have this positive drift. One would have to believe the pain will come- it is just a matter of when. With an expected 15 to 25 percent unemployment rate, we just don’t get to ignore that. It will have ramifications especially with 70 percent of the US economy being driven by consumer buying. Soon the stimulus money will run out, and we could see a deep correction. Those employed will run out of stimulus money to invest which would cause the possible imbalance in the markets to stop the short squeeze on institutional traders who were buying to cover their short positions. Those unemployed will also run out of money and could draw from their retirement savings that would force institutional traders to further sell their long positions.
The key to becoming a more consistent trader is investing according to your risk tolerance, the strategy, positions sizing and having a coach who can help you learn and avert losing while you learn. Trading can take a long time to master and a coach can help you hit the ground running with the basics and the dos’ and don’ts. At Tradeology- The Fifth Insight we will do one-on-one coaching sessions with you. The goal of our community is to create an environment where anyone can learn how to trade. Check us out on www.YouCanTrade.com/Tradeology-the-fifth-insight.
Disclaimer: The author is not a financial advisor and the following should not be taken as financial advice. This is by no means a complete discussion of the pros and cons of trading and/or investing. Please consult your own qualified advisors to determine what is appropriate and best suited to your specific investment objectives and risk tolerance.