Market Commentary

Stock Market Crash 2020

The stock market is as unpredictable and volatile as I have ever seen it. The irony is that we are currently trading at levels back above previous all-time highs, in spite of the fact that economic fundamentals have barely improved (if at all).

While the market should be going down in most sectors, we’ve experienced hyper-growth and artificial creation of a “Super Bubble”, in which the entire stock market seems to be propped up by the Fed alone.

Over-optimism about a COVID-vaccine being introduced soon and government stimulus cheque traders coming out of the woodwork has the market acting in ways that almost seem entirely counter-intuitive to the fundamentals that we typically act upon.

Why is the Market Up?

There are a few reasons that the market is riding an upward wave but for the most part, you can look to the government here.

Governments throughout the world are pushing out stimulus packages with increasing intensity, refusing to let their economies falter. In addition to putting money in the hands of all of their citizens, governments are also further decreasing interest rates, thusly creating ‘cheap cash’ and incentivizing borrowing and spending within their economy. When interest rates are down, loans become cheaper, and people are more likely to make financial moves that require borrowed capital.

This could result in purchased homes, business loans, or, for many, new investments.

The Robinhood Trader Wave

With online information and financial accessibility at an all-time high, there has been a massive influx of new investors within the past few years. During COVID-19, this number has multiplied exponentially. Recently laid off citizens who are flush with stimulus cash have seen a new road to riches: at-home investing. According to a June report from SoFi and Cintement Research, nearly one quarter of new investors on the Robinhood platform have made their first trade during the pandemic, with one-third of total users increasing their activity during this time. In fact, Robinhood co-founders Vlad Tenev and Baiju Bhatt even recognize this, saying:

“It is not lost upon us that our company and our service have become synonymous with retail investing in America, and that this has led to millions of new investors making their first investments through Robinhood.”

With an average user age of 33, this new, young investing audience has come out swinging, magnifying the rallies and compounding the losses of the market over 2020. As experienced investors see the stock market detach from the financial fundamentals in favour of the most ‘hyped’ companies (typically in the tech space), many old-school investors are apprehensive about what to do next.

Whether or not this will result in a “SuperBubble” for the market or change the investing landscape is yet to be seen.

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