The Stock Market

The stock market has been climbing at what seems like an exponential rate. What is driving the climb? It is sure not wages, corporate profits have been climbing but not to warrant this growth, so is it a bubble that is going to burst?

Can anything stop the stock market's relentless rise?
Hartford Courant
By Stan Choe and Marley Jay Associated Press
January 26, 2018

It's been 365 days since the Dow Jones industrial average first crossed 20,000, and it's already up another 30-plus percent as the stock market's relentless rise to records keeps going.

Few market watchers see a sharp reversal for stocks anytime soon, at least this year. But press them on what could possibly derail the market's run, and they usually land on a similar list of potential threats.

The warnings come couched with caveats: The general expectation is for stocks to keep rising, albeit at a slower pace, because the odds seem low for a recession this year. Economies around the world are finally in sync and growing together, and the U.S. is getting an extra kick from recently passed tax cuts. That should keep profits on the upswing for companies, and stock prices tend to follow the direction of profits.

But many potential potholes lie ahead. One concern centers on just how long and strong this bull market has been. Since they began rising in 2009, stocks have become more expensive than they've historically been, relative to corporate profits. That said, stocks have managed to keep climbing in the past, even when they've been as expensive and as deep into a bull run as they are now.

Here's a look at other potential threats that could trip up what's been one of the best runs for stocks in history:
— An unexpected spike in inflation.
— Central banks around the world tightening too quickly.
— A trade war.
— A real war.

So has any of these have happened?

Well the Feds just increased the interest rates and Trump just started a trade war…

Should we be nervous?

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So did you ever wonder how the stock market worked?

Well a company that is worth 100 million dollars wants to raise money so they decide to sell some stock, say they have a million shares at a hundred dollars a share or a100 million dollars in stock.

Well if they decide to sell another million shares that is going to devalue the stock price in half, they will now be worth fifty dollars a share.

People see that the company has good potential so I buy the shares at $50 a share.

You come along and think well, this company has good potential so you offer them $55 dollars a share but no one wants to sell, so you offer $75 a share, you walk away with a nice profit.

George sees that the stock price increased by 50% and thinks, “Hey this stock is moving!” so George buys it for a $100 a share.

Sue sees that it has doubled in price and think “Hey I have to get on the band wagon.” She pays $150 a share.

You then see how it has moves and offer a $125 a share.

Around and around it goes with you and George, and Sue until it is a thousand dollars a share. Wow!

Pete comes along and thinks, “Hey wait the company is only worth 100 million dollars and the stock is worth two billion dollars!” and he decides not to buy any shares.

All of a sudden the bubble goes “POP!” and the shares drop to $50 a share.

The company is happy because they raised enough for the expansion, you are happy because you sold your shares to George and George is happy because he sold his shares to Sue who got stuck with it when the music stopped.

Now take a look at today’s stock market at over 26,000 does anyone else think that there is a pin out there ready to burst the bubble?