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What is Propping up the US Stock Market?

Updated: Aug 30

Lets take a look into what's keeping up the US stock market from various angles and get a deeper understanding of how the stock markets are still kept up in these troubling times.

  • An influx of Government Capital

Supporting the Washington post and supporting articles over the past year since the coronavirus criticised some of the govt actions regarding an influx of trillions of dollars of money being funnelled into PPP loans which do not need to be repaid.

Many have suggested that there have been businesses taking abusive advantage of free government capital and that has had an overall effect on the US economy.

To give an example, companies that were doing poorly or were on track to fail were able to get government loans to continue to do business and were able to obtain govt loans to do stock buybacks to inflate the value of company stock prices.

This in turn can be seen as a faulty teetering point for an investor that is unsure of the true value of a company.

In short businesses are acquiring loans which do not need to be repaid to buy stocks in there own company to keep the value of there stocks up, creating a sense of a false economy

  • Influx of U.S. Retail Investors (Traders)

It is no surprise to anyone that the retail market for traders in the US economy has expanded in the last year and a half, this can be due to several factors.

One factor being at the beginning of the coronavirus young people were no longer spending their days and nights working their traditional jobs.

With the uncertainty of the state of the country and not being able to step outside of their homes, a certain entrepreneurial section of millennials and gen z's looked to the internet for ways to make extra income or income in the things like the US stock market and bitcoin and investing as a whole.

With the rise of technology, it has become so easy for an individual to invest in a market even to a point where somebody can do it on a phone and in bed before breakfast. With this ease of investment using stimulus checks and free trading on accounts that are leveraged and margined allowed for young retail investors access to communications to what other traders are doing has seen the markets of retail traders increase to 25%.

One of the ways this can be propping up the stock market could be that these new retail traders are not following fundamental analysis guidelines in which where investors invest in something for the value and merits of a company's impact on the economy at large these retail investors are investing based upon rumours and chart patterns which don't equate to the actual value of a company.

GameStop and AMC are two examples of the stronghold that the retail trader now has on the stock markets at large, the retail trader can inflate the price of a stock without the true value being taken in as a factor to an investment.

Decentralized retail investors now making up such a large percentage of the market they can be on the same level as banks and hedge funds.

  • Inflation of the USD (Money Printing)

CPI (white) & PPI (red) - 1% Dashboard

M2 Money Stock - 1% Dashboard

Since the beginning of the pandemic, the US has printed more money in the past year and a half than it has in the last 20 years combined.

In a normal state of inflation, markets would be able to slowly adjust to either rising costs or the normal markets that deflate due to inflation.

This would cause a cascade effect of the value of something being higher when exchanging money for goods, services or investments.

What this means is that the value of something goes up when the value of what you are trading it for goes down.

The stock market has increased in value due to this effect not because the value of the stock is any more valuable but because of what you exchanged the stock for (which is money) which devalued by 25% in one year.

Another reason is since the value of the USD is so low compared to other currencies this will cause investors' outside of the USD to flood into the US stock market because the value is now cheaper when you exchange the other currency for USD and can have more buying power.

An influx of foreign money into the US stock market has caused the value of stocks to go up because there is more money into the pool of money that was already there all in part to the USD being inflated and foreign money buying into the dollar.

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