If you needed any further proof about the difficulty in predicting stock market results, you should have it now. Before election day in 2016, you were told that electing Donald Trump would kill the stock market. This year, you were told that just the threat of a Democratic $4Trillion tax increase would kill the stock market.
Mr. Market says, Watch what I do, not what anyone says! This is one of the reasons why using technical analysis along with fundamental analysis can be so profitable. The month of November witnessed percentage increases in the Dow Jones Industrial Index of 11.84, the NASDAQ 100 of 11, and of the S&P 500 10.75.
Do these investors not know we are in a recession, people are still dying of the virus, and the healthy workers are losing their jobs again? Present conditions are never as important as perspective about the future 9 months or more out in front. Will things get better? Or will they get worse?
Let’s look at the November difference among winning sectors. Top of the heap were the beaten down Energy stocks, up 28.81 percent. In second place came Financial Services at 17.36 followed closely by Industrials at 17.31 percentages. Still positive, the worst performers were Utilities, Communication Services and Consumer Defensive stocks. Technology, far and away the best sector year to date, came in fifth place with a 14 percent gain.
I think the primary economic lesson is found in the genius of the Invisible Hand phenomenon. A few Billion people are making their individual decisions about buying and selling stuff (including investments) every business day of every year. If there are more buyers than sellers, prices of anything will rise in the short term. If demand for a product falls, the price will fall.
Consider the current price of gasoline. I wish I had a dollar for every time I have heard it said or read on social media that Big Oil just sets the price of a gallon at whatever it wants. I can tell you that Saudi Arabia right now certainly wishes that were true. (By the way, if gas were free, you would still pay almost 36 cents a gallon in Missouri for federal and state tax.)
The all-time high for the Amex Oil Index occurred in the second quarter of 2014 at a level of 1,730. The March low during the panic was 443. Since then it has exploded up 115 percent and plummeted 36 percent, currently up another 36 percent to 818. With that in mind, does it appear that some giants somewhere are in control? Will it rise as even more people feel safe to travel? Probably a safe bet.
I for one am glad that demand and supply principles of economics work reasonably well when allowed. New products and services arise and fade away. We all get to vote with our money. This is capitalism. Have you taught yourself and your family how and why it is the best system?