Stock Market - Page 2

The Relationship Between the US Stock Market and the Economy

The US stock market is enormous. At over $30 trillion, it is a massive one. Many global companies are active on it and they affect the economy as a whole. Pundits have always based their economic forecasts on the performance of the stock market. 

The general mood of investors in the market can indicate how the economy will perform in the coming months. The stock market and the economy are thus tied in a special relationship where occurrences on one end affect the end. The following is a breakdown of the key ways in which it affects the economy.

The Working Mechanism of the US Stock Market

Before delving into the key details, it is important to note the mechanisms that characterize the US stock market. To start with, it is among the most liberal ones in the world. It is also huge and it constantly attracts investors from all over the world. The easy processes involved in doing business are the key drivers of investment in the market. Over 46% of households in the US own some form of stocks. US companies are thus enticed by the market and they often get listed when they want to achieve growth.

Img source: pexels.com

How the Market Affects the Economy

In terms of its characteristics and contribution to the economy, the stock market is influential in the following main ways. First, it allows the participation of all individuals. Individual investors and private equity investors can all find their space in it. This is one of the best destinations for individual investors since they can bet on their stocks to give them returns. Representing 40% of the global stock market cap, in the US, it is irresistible. Information is also not a challenge as investors can see the best shares to buy from market data. According to traders working with AdmiralMarkets, investment in this market is also a great way to avoid inflation. When cash is exchanged for shares, the value is retained regardless of the prevailing inflation.

Second, the economy is kept vibrant because of the stock market. When companies are looking for capital, they turn to individual investors. They do this by floating an IPO where anyone can buy shares in the company. This means of raising capital is effective because it gives investors the confidence to buy shares knowing that the firm is valuable enough to go public. Shareholders who buy stocks maintain percentage ownership of the company and thus become invested in its success. Most IPOs end up raising a large capital and this has a lot of bearing on the company.

Lastly, the behavior of investors in the stock market indicates how they generally feel about a particular company. When the stock prices of a particular company go up, the indication is that investors feel confident about the future of the company. When the prices are falling, it means that investors are not confident in the company’s ability to generate profit. These occurrences have an effect on the economy as a whole. In recent times, the technology sector has become the largest in the stock market, accounting for 26% of the total value.

The Effect of the Economy on the Stock Market

Img source: pexels.com

As noted earlier, the economy also affects the stock market. It is a major source of insights for various entities in the economy. When the economy is fairing well, more consumers are likely to increase their spending. One of the areas where consumers end up spending their extra cash is on investments in the stock market. The demand for goods and personal consumption are thus crucial factors that affect the performance of stocks in the market. The various indices show how it performs throughout a business cycle. In a given period where the GDP is faring well, a good performance will be recorded on the stock market and vice versa.

Effects of the Stock Market are Limited

To conclude, it is important to note that the stock market is not the same as the economy. Even in the US economy where the exchange is huge, the economy is big and independent enough to function under its forces. Investors in the stock market might sometimes fail to read the signals of the economy and end up overinvesting, leading to a crash.

How To Choose Forex Trader

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The forex market is very competitive, but more so in recent years than ever. The competitiveness in this field can give an ordinary person a headache from the selection of all the brokers available.

The task of choosing the best forex broker to trade can put an ordinary person into disarray, especially if the person willing to trade knows nothing about the market or how things are done.

So because of that, we are going to talk about how to choose the best forex broker.

1. Security

It would seem that security is an important characteristic in any field of expertise. Luckily for you, there are regulatory agencies that can vouch for the trustworthiness of your forex broker. As a person who is willing to spend money on the forex market, you can’t simply hand over thousands of dollars to a person who simply claims he’s legit. This is why each country has its own corresponded regulatory bodies that monitor forex brokers.

Img source: admiralmarkets.com

We are going to mention some of them:

Before you think about giving your hard earned money to a broker, make sure he is a member of your countries regulatory bodies.

2. Transaction Costs

Transaction costs are always present no matter in which currency you are trading. According to data at Fx-List, every time you conduct a trade, you will have to pay for eighter the spread, or a commission. So a great rule of thumb in this industry is to find the brokers with the cheapest and most affordable rates available to you.

3. Deposit and Withdrawal

Any good and professional broker will allow you an easy deposit and even easier withdrawals. Since a broker holds your funds to facilitate trading, there is no real reason as to why your broker would hold your money and make it hard for you to withdraw your earnings. Your broker should make it his job to make the withdrawal process go as smoothly as possible, with minimum waiting time.

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4. Easy Trading Platforms

Since trading in online forex happens on the broker’s trading platform, the platform in question should be more than user-friendly and stable at best. Forex trading can be quite confusing for people, so the platform must be easy to navigate and understand. There are many trading platforms where many brokers operate. Choosing the best one can be quite tricky, but the better ones have features such as news feeds, easy to use technical and charting tools, information needed for trading properly and more.

5. Execution

A good and reliable forex broker will give you the best possible price of your order. This is a mandatory task that all reliable brokers should do. Furthermore, a good internet connection is needed so that real-time trading can occur. In the case of normal market conditions, your forex brokers should fill you in on the exact market prices you see when you see at the buy or sell buttons.

Bitcoin and the Stock Market: A Simple Investing Strategy

“Should I buy bitcoin?”

This is the question everyone is asking. Is it a good price? Will the bitcoin price go up in the future? If so, by how much?

No one can predict the answers to these questions, because blockchain-based investments like bitcoin are a new asset class. We simply don’t know the rules.

Source:bitcoincryptocurrency.org

But we do know the rules for investing. They were laid out in 1949 by the Columbia economics professor Benjamin Graham in his classic book The Intelligent Investor. Graham’s strategy is called “value investing,” and it built the fortunes of great investors like Warren Buffett and Sir John Templeton.

Though there are many types of value investors, what they have in common is investing in great companies at a discounted price, companies whose stock price is a great “value.” While many investors look to “buy low and sell high,” value investors use disciplined analysis to find the “lows” and “highs.” This involves betting against the crowd.

The classic value investor also keeps a portfolio of both stocks and bonds to hedge against risk. Since bond prices generally go up when stocks go down, and vice versa, holding a mix of both — and periodically rebalancing that mix — provides safety against wild market swings in either direction.

But which stocks? Which bonds? In the modern update to The Intelligent Investor, the Wall Street Journal financial columnist Jason Zweig suggests holding the majority of stocks in a total stock market index fund, to diversify across the entire stock market. For bonds, he suggests a total bond index fund.

Source:investors.com

He does allow, though, that a portion of one’s stock holdings can be used for “mad money,” i.e., picking individual stocks, or precious metals, or even alternative investments. Thus, The Intelligent Investor portfolio today might fall somewhere between these two bounds:

It is in the slice of the pie called “alternative investments” where we can enjoy a taste of bitcoin. Bitcoin is the alternative investment that has seen magnificent returns over the past several years when most financial advisors did not even know what it was.

The approach here is to consider bitcoin (and cryptocurrency) as a slice of the investment pie. Of course, investors should not put more into bitcoin than they are willing to lose completely — and if they do, they see it as “tuition paid.” On the other hand, most can afford to lose a small slice of the pie. Visiting bitcoinprofitpro.com. you can learn how to earn money on bitcoin.

Including a bit of bitcoin within an investment portfolio allows the investor to learn about this new asset class, and potentially enjoy enormous gains that bitcoin has seen since starting at just a few pennies in 2010 and growing to over $5,000 today.

Source:smartasset.com

Another advantage to this investment strategy is that bitcoin is not correlated with other investible assets like stocks, bonds, precious metals, and the like. In other words, while bitcoin does experience wild price fluctuations, they are largely independent of other markets, making it a diversification tool.

The biggest drawback is that bitcoin cannot be purchased through traditional online brokerages; you can’t buy bitcoin at E*Trade yet. The investor needs to purchase bitcoin through online blockchain exchanges like Coinbase or bitcoin lending platforms like xCoins.io. The intelligent investor, then, might hold in his or her portfolio:

  • 45% total stock market index fund (like Vanguard Total Stock Market Index, VTSMX)
  • 45% total bond market index fund (like Vanguard Total Bond Market Index, VBMFX)
  • 10% bitcoin
  • One who puts his money in stocks only;
  • One who puts her money in stocks, bonds, and 2% bitcoin (the “conservative” portfolio above);
  • One who puts his money in stocks, bonds, and 10% bitcoin (the “aggressive portfolio above).

Here is a chart showing their three-year returns from September 1, 2015, through September 1, 2018.

The “aggressive” portfolio nearly tripled the value of the stock-only portfolio. Even the “conservative” portfolio outshines the stock market over the past three years. It also hedges risk by holding half stocks and half bonds.

Beyond Bitcoin: Diversifying Blockchain Holdings

Source:techcrunch.com

The easy way to invest in cryptocurrency, as we’ve shown above, is to simply buy and hold bitcoin. However, the intelligent investor may want to further diversify his or her alternative investments into other cryptocurrencies.

Let’s take the 10% “alternatives” of the Aggressive Portfolio and now further diversify it into the top three cryptocurrencies: Bitcoin (5%), Ethereum (2.5%), and Ripple (2.5%). The new allocation looks like this:

After just three years, the portfolio has multiplied an astonishing 9x. That $10,000 has grown to over $90,000—while still being protected against risk!

This assumes a one-time investment in 2015, then patiently allowing the gains to accumulate. This demands that investors wait out the huge roller coaster swings of the crypto market, avoiding the temptation to buy at every new high and sell at every new low. It requires patience and confidence.

To hedge against this psychological risk, there is another approach that is proven to deliver even bigger returns: investing the same amount every month, or dollar-cost averaging.

Dollar-Cost Averaging: The Easiest Way to Invest

Source:nohoartsdistrict.com

Let’s use a simple stock market example (no bitcoin). Instead of a one-time investment of $10,000, imagine the investor splits that $10,000 over 36 months, investing a fixed amount of $833 per month in the S&P 500. This is invested like clockwork, regardless of what the market is doing; it’s on autopilot.

After three years, that $10,000 one-time payment has grown to a little less than $15,000—but nearly $30,000 if split into monthly installments.

This technique is known as “dollar-cost averaging,” and it is the best approach for most investors for a few reasons:

  • You put the same amount in each month, sometimes buying more (if prices are low) and sometimes buying less (if prices are high). In this way, you end up buying the “average.”
  • This avoids you making a one-time investment when the market is high (and you never know if the market is high until later). You don’t have to worry about “timing the market.”
  • It also easier psychologically. When prices are low, you have the satisfaction of buying more—and when prices are high, you have the satisfaction of prices being high. It’s a win/win.

Combining the Dollar-Cost Averaging strategy with the Aggressive Portfolio above, then, you might take $500 per month and invest it like so:

  • 65% ($325) into a total stock market fund (like Vanguard VTSMX);
  • 25% ($125) into a total bond market fund (like Vanguard VBMFX);
  • 10% ($50) into bitcoin (or a basket of cryptocurrencies).

The intelligent investor would have these investments set on autopilot, transferring to an investment account and crypto wallet at the same time each month (say, on the 1st or 15th) via automatic withdrawal, if possible.

Today’s “intelligent investor” looks similar to the intelligent investor of the past. He or she is still focused on long-term reward while hedging against risk.

But isn’t it a bigger risk to sit out the crypto investing revolution entirely? This approach allows investors to balance risks with the rewards of bitcoin.

 

 

 

What Experts Are Saying About the 2019 Stock Market

The stock market is performing well under President Donald Trump, primarily thanks to the massive tax breaks that were given to corporations. But as we started seeing at the end of 2018, these tax cuts were offset by tariffs for a lot of companies.

Statistically, stocks will fall and rise 10% the next year on average.

Swings in the stock market are not the only indicator that needs to be examined when predicting how the market will perform. Stock markets rise and fall year after year, and a dip at the end of 2018 may be more of a correction than a major concern for investors.

Instead, a few considerations for the coming year are:

GDP is Expected to Slow

Img source: gannett.com

GDP performed well in 2018, hitting inflation lows and a near 50-year unemployment rate. Analysts expect the tax cut benefits for businesses to fade this year, and mortgage rates are rising, which will impact the housing industry.

China’s tariffs remain a concern, and a lack of workers may start to impact businesses that can’t find ample employees to fill their ranks.

All of this points to timid GDP growth, and this may keep stock market gains subdued.

Sky-high Earnings Growth to Slow

US stocks have enjoyed rapid growth for years, but as we’re seeing with Amazon, growth is starting to slow somewhat. This doesn’t mean that the growth will stall, but when a company has been able to achieve growth of 30% or more in revenue quarter-over-quarter.

But the company is under increased competition and has such a high market share that these growth figures may be hard to achieve.

Revenue growth is now slowing to the 20% mark, and while not bad by any means, the days are giant growth stocks are starting to fade away. Walmart and others are slowly taking some of Amazon’s market share, but for large-scale companies, especially in the tech field, we’re seeing revenue growth levels that are lower than we’ve experienced in recent years.

This slower growth will lead to higher stock fluctuations, with steeper losses when quarterly releases are made.

Cheap Capital May Impact Lenders

Img source: businessmodulehub.com

Higher interest rates will cause consumers and businesses to cut back on borrowing. Interest rate hikes will make borrowing more expensive, and this will be just the start of the issues. A tighter labor market will also lead to many employers not being able to retain talent.

Higher wages will dictate the job market, and this is likely to cause job growth to slow this year.

Global Bear Markets are Possible

It’s very possible that the world may see a global bear market, and this is primarily due to economic peaks. There may not be a drastic bear market, and we may even see a bull market in 2019, but a bear market is still a possibility.

Brexit and international markets slowing may lead to higher investment fears.

Central banks will play a major role here, and if rate hikes continue, consumers will be left either unable to afford mortgages and loans, or lenders may find themselves with higher revenues.

With the stock market on track for worst year since 2008, who’s to blame?

In nearly two years of lots of political upheaval, this week felt especially chaotic.

Special Counsel Mueller investigation seems to be nearing its conclusion, and Trump’s former National Security Advisor Michael Flynn may have been accused of treason by a federal judge.

Source:wsj.com

Trump’s personal lawyer Michael Cohen is going to jail for three years, and the government is about to shut down over a high-stakes game of political chess over the President’s desired $5 billion in border wall funding.

The Federal Reserve moved ahead with rate increases, and President Trump announced he’s pulling troops out of Syria, despite counsel otherwise from all of America’s top brass and amidst criticism from congressional Republicans and prominent GOP commentators.

Source:seekingalpha.com

General Mattis, Secretary of Defense, resigned and long-embroiled Secretary of the Interior Ryan Zinke is also on his way out, plus Chief of Staff John Kelly said his adieus.

All this turbulence politically, both here and abroad, and the markets certainly reacted. We see constant movement of the figures, and this state certainly isn’t healthy for most people working in the industry. Will it change in the near future? Not likely, it is how the politics work at the moment.

By all accounts, it was a brutal week on Wall Street as stocks fell again on Friday, following a very rough week of losses. The NASDAQ is back in a bear market, and stocks are on track for the worst December since the Great Depression. All three major indexes are on price for their worst year since 2008.

Source:cnbc.com

CNN Business reports:

“President Trump took full ownership of the stock market boom. That unusual strategy is backfiring now that markets are crumbling.”

We have to wonder what Trump’s plan is now, especially with Nancy Pelosi getting ready to take back the mantle of power in Congress and thwart the President at every turn.

Stock Market Reacts To Trump/Kim Summit Being Canceled

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The United States stock index finished lower than usual after Donald Trump canceled his meeting with Kim Jong Un. The entire market dropped after the announcement, but energy companies whose stock fell the most managed to recover the largest part of their losses.

The drop in energy companies and oil futures happened because the market reacted to the news that OPEC nations might start to produce more oil. Rates edged down, and because of this banks fell, and they were followed with car industry when Toyota and Fiat Chrysler fell after POTUS announced tariffs on imported cars and car parts. Similarly to other Trump moves in recent weeks, this statement was followed by disagreement from China, Japan, and European Union.

One of the stock market indexes that took the biggest hit was Dow Jones Industrial that fell for 280 points, and additional 1% after Trump announced that Singapore summit is off. The reason for cancellation, according to POTUS, is the “tremendous anger and open hostility” shown by North Korea in their most recent statement released to the press.

Source: edition.cnn.com

Another segment that went down heavily, and it was one of the biggest in recent years, is technology sector. At the same time, defense contractors climbed. This always happens when the nuclear threats become a theme in the news. The market started recovering right after Mr. Trump said that summit could happen in June, or at a later date. At the end of the day, stocks were slightly lower from the spot they were before the Trump’s announcement.

Chris Zaccarelli, chief investment officer for the Independent Advisor Alliance, said that stockbrokers were more alarmed by threats of nuclear war exchanged between Trump and Kim in the past than they are now. Because of this, when nuclear weapons are mentioned, the market doesn’t react panically as it did in past years. Zaccarelli said: “The first time the market hears these threats, there’s a large reaction, and after that, there’s less reaction. It’s just rhetoric right now, and there’s no actual military conflict, [so] these moves are kind of short-lived.”

Source: www.latimes.com