Why does the market keep going up?
This is a popular question these days. Of course, no one is really complaining when they ask it. It’s like having cool weather in the middle of August when it should be 102’ F and 93% humidity. You know that you should just enjoy it and not really question it.
Yet, it is our job to ask questions like “why is the market going up?”
The answers to this question can be both broad and pointed. You could proof text your answers, meaning form your own opinion and go look for “expert” writings to support your opinion. You could just enjoy the ride, not looking out for the risks associated with it, not our recommendation. Or you could just look at all of the doomsday scenarios that say the market will crumble any day now, also not our recommendation.
This article is not intended to give a detailed economic or financial market thesis, which would bore you. Nor intended to predict what will happen in the future, we don’t have a crystal ball.
In short, we think that the market is going up because the economy is growing and the Fed still pushing money into it. Three statistics support this:
- 1st quarter US GDP, the broad estimate for economic activity, grew at 2.5% annualized according the U.S. Department of Commerce. This is showing that the output of goods and services in the U.S. is growing at a modest pace, not knocking the cover off the ball, not striking out, but just steadily hitting singles.
- The weekly jobless claims number is trickling down. On May 4, 2013, this number was 323,000, down over the previous four weeks, according the U.S. Fed. This is not the unemployment report that is often talked about and debated, which stands at 7.5% in April, again according to the U.S. Fed. This is the weekly number of new people filing for unemployment. It has been slowly dropping, showing that people are staying employed.
- What is the U.S. Fed doing? In short the U.S. Fed’s job is to combat inflation and unemployment in our economy. This is called the “dual mandate” enacted by Congress in 1977. Currently the Fed is pushing money into the U.S. economy by keeping its interest rates low and purchasing $85 B a month in bonds (QE3). Stacks of articles are being written for and against these practices. Certainly, a lot of what the fed is doing has never been tried before. Yet, remember a lot of what our country has done throughout its history has never been tried before. So, a new practice is not bad or good just because it’s new. There is an old Wall Street saying and it’s repeated throughout the world, “Don’t fight the Fed.” Many of the World’s central banks are following the U.S. Fed and pushing money into their economies, supporting global financial markets.
Back to our original question, why does the market keep going up? It is always hard to give a definitive answer, but these three points give positive support. Financial markets do not go up in strait lines; they bump along sideways, swoon, dip, and grow. We expect no different from this market.
In the good times and the bad of both the financial markets of the world and life, we are reminded of a wonderful verse in the Bible: For everything there is a season, a time for every activity under heaven... A time to plant and a time to harvest…A time to tear down and a time to build up… A time to grieve and a time to dance. Ecclesiastes 3:1-4. God’s Word tells us that everything has its time, markets and economies are no different.
Investment advisory services offered through Sound Financial Strategies Group, Inc.("SFSG"), a Registered Investment Adviser. Securities offered through Comprehensive Asset Management and Servicing, Inc., ("CAMAS") Member FINRA/SIPC. SFSG and CAMAS are separate and unrelated companies. The opinions voiced in this article are for general information only. They are not intended to provide specific advice or recommendations for any individual and do not constitute an endorsement by CAMAS. To determine which investments may be appropriate for you, consult with your financial professional.
Posted on Tue, May 21, 2013
by Sound Financial Strategies Group