How does the stock market continue to go up?

Question

All you hear is bad or mixed news about the health of the economy, yet the market keeps going up. I don't get it. What's driving it up?

Answer 1

It's partly due to different frames of reference.

We're coming off a few years of economic superlative performance, so a year of sort-of-average performance might look bad compared to previous years. But it's not like the economy's tanking; the main current problem is only in the housing sector, and although there will be ripple effects, it's not going to totally take down the rest of the economy. There are other sectors that are doing quite nicely.

The market's going up because profits are going up, it's that simple. Check the P/E of the overall market, which is still at sensible levels. It will be a little volatile this year, partly because of uncertainty about things like how bad the housing market and subprime CDO problems are, but I think it will continue to do well in the longer term.

Also, don't forget -- the press likes bad news better than good news, and sometimes there's a Chicken Little effect even in the mainstream press. It's when they stop that and pretend that everything is Perfectly Wonderful and Couldn't Be Better (like 1999-2000) that you need to start worrying.

Answer 2

Bad news makes good headlines. However, the market considers a lot of economic data. Some is bad, some good. The market also tends to react much more at this time of year, when traditionally there is less money on the sidelines.

Overall the market trends up over time - which is why stocks outperform bonds or low-risk investments in the long term. However, major corrections go with that - you can easily lose money in the market by buying when the market is near the top, and getting nervous and selling when it drops, instead of considering that to be a buying opportunity.

The market works best as an investment when considered over the long haul - at least a 10 year timeframe.

Answer 3

The Economy is in solid shape currently. There are some people who will always claim doom and gloom as far as the economy goes. The reality is many US companies are profitable and it is these profits and the potential for future profit that drive the market upwards. The stock market is only 1 economic indicator so the fact that the market is going up doesn't guarantee a good economy, but it certainly indicates there is a positive outlook for economic growth

Answer 4

Well, all things considered, there are still many people employed in the US still contributing to their 401K's, IRAs, and mutual funds.

These entities need to put their money somewhere and a lot of it goes into the market. AND with more and more mergers/acquisition activity, there'll be fewer public companies to invest in, also contributing to a rise in prices as well.

Yes, other factors play a part, but the BIG money is what drives the market and BIG money has to be somewhere in order for it to be productive, thus, it tends to go into the market and fuel prices.

Hope that helps!

Answer 5

the drive by media makes it look bad -because of bush -now if a Democratic liberal was president -it would be front page news how grand the economy is doing

Answer 6

More buyers than sellers.