At many press conferences, President Trump likes to point out how Wall Street is doing and while that is good, it is almost important to understand what Wall Street does not include. Most business in the US are small and medium sized and are not public, only Wall Street public companies are listed. The average person in the US does not own shares, they may own them indirectly through their pension and retirement packages which come through work, those holdings are called institutional money and as long as paychecks are paid, the institutions will have money. Some of the bigger funds are Teachers Pension Funds; Employees of the State; Insurance Company funds and Mutual fund companies both active and passive or fee or indexed funds.
In an article by Stan Choe, Alex Veiga, and Christopher Rugaber of the Associated Press highlighted the reasons:
Some business have done better in the pandemic and that include the big tech names FANG – Facebook, Apple, Amazon, Netflix and Google. Some stocks have done worse such as American Airlines but they have smaller percentages in the index (it would take 280 American Airlines to have the heft of one Apple) . The 5 big tech companies account for 22% of the S&P 500 index.
A famous saying on Wall Street is Don’t Fight the Fed. At the moment the Federal is doing all it can and more to keeping interest rates low and buying corporate debt. With interest rates low, investors are turning to stocks, gold and other investments.
Wall Street tends to look toward what will happen in 6 to 9 months, not what is happening today. There is hope for next year. There are many areas where the hope can be eroded but there is hope.
Linking to dividend paying stocks, the economy is not Wall Street and it is regrettable that the President often confuses the two. There exists 2 separate economies, one which is doing okay and having the ability to shop on line and do renovations because they are spending less money on entertainment and travel. The other economy is people are worried about rent and car payments because their income is based on people socializing. When investing, where possible ensure your money is where companies benefiting from the on going situations in the economy.
There are more questions than answers, till next time – to raising questions.