Why the Markets Could Still Go Up Even with an Election Coming.
Three charts pretty much explain what is happening right now in the markets. The volatility index is at 36 today. That number used to be considered extremely high historically. It is still high, and I would guess that number may be lower six months from now.
When this number is high, the market generally is at a low point. The first chart was taken from Telecharts on September 4, 2020. This just means that people are nervous. When it gets this high, generally it means there is a lot of people and cash on the sidelines and that the market probably will be higher as that volatility index comes down.
The second chart is the money sitting in money market funds. This number is even greater than where it was in 2009. This means a lot of investors have their money parked in cash and not in investments. That seems counter intuitive because the market is much higher. That just means that there is a lot of money that can come back into the markets as people become more comfortable. If this number were very low, that would be a problem because there would not be a lot of potential fuel for the markets. This shows that there is lots of potential fuel.
The third chart comes from the Federal Reserve website. This shows why the markets are up so much. The Federal Reserve has added three trillion dollars to the pool of investment assets in the last few months, and that is why stocks and bonds are so expensive and have done well over the last three months.
This is called a liquidity driven market. If you based your investment decisions on fundamentals like earnings and employment numbers, you may not be invested in this market. But if you made your decisions based on liquidity, there is so much liquidity (fuel) out there that you would be invested. If the Federal Reserve stopped this printing of money, we could have a problem. They said they will not stop this for a while.
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