I was listening to an episode of The Compound & Friends yesterday and they were talking about how the market just seems to hang in there. There are so many reasons for a correction (high P/E, Hormuz, tweets, inflation, housing) but somehow the market is still sitting around 5% of all time highs. There is rotation within the market and segments are in recession, but overall the money is not moving to the sidelines. People and institutions just aren't panic selling.
So it occurs to me this morning that there is a lot of shared knowledge out there that "dumb money" has had access to for years now, and there is a heavy influence of index ETFs, so if people hang on or buy the dip then the market just absorbs the shocks that seem to come daily. I guess that is the "diamond hands" hypothesis.
The other possibility is just that there is too much money out there looking for a home and everyone knows that inflation is baked in so you just have to stay in assets.
Thoughts?
Diamond hands, or just too much capital out there?
byu/Impossible_Eye_8474 instocks
Posted by Impossible_Eye_8474
7 Comments
The American economy is still relatively strong. (Not referring to the real lived economy.)
There’s also nowhere for money to go.
The data I see says otherwise.
>they were talking about how the market just seems to hang in there. There are so many reasons for a correction (high P/E, Hormuz, tweets, inflation, housing) but somehow the market is still sitting around 5% of all time highs.
We’ll call the “market” the SP500. The SP500 is just 500 companies that produce profits and pay distributions. It is a very small subset of the overall economy in terms of “membership”, but it is an outsized subset of the economy in terms of revenue and profits.
Now these aren’t just 500 randomly selected companies, they are amongst the very best – your Ivy League and Stanford students, your pro sports all stars. Broadly, it means they do better than other companies in any environment. So despite all the doom and gloom, these companies are not going to crack.
Your top 30 weights in SP500 are few to several decades old – they have gone through wars, inflation, soaring energy, financial crisis, dot com bust, global pandemic – yet they still stand today. Cumuliatively SP500 stocks are consistently increasing revenue, profit and distributions over time; despite all the “bad” in the world.
My advice – learn what makes stocks or the index have value and grow value. Then you can filter out noise. In the long term it’s the micro that matters. I say long term, because the macro can cause downward volatility that is nothing specific to the company itself.
You aren’t acknowledging inflation and its impact on the real value of those dollars the market is worth now
Gulf States has poured trillions into the US stock market and has commitment to invest more. If they stop doing it and even worse, start to sell off as a result of the war the shock and the cascading effect could create a massive crash.
Since the 90’s
– The US money supplied has increased 6 fold
– The amount of public companies has decreased by 40%
– Household stock participation in the market is nearing record highs.
Infer what you will
too much capital, when a 50yr old house is 700k in a third world country, it means theres not many places remaining for it to go to.