Prices have increased everywhere. The most prevalent being gas, lumber, retail pricing, automobiles, real estate, and service costs. What intrigues me most is the rate at which stock market pricing is increasing. Take a look at the 5 year chart on the S&P 500.
Look at the rate of increase since the March 2020 drop. It appears to be going straight up rather that slowly increasing over time like the first 80% of the chart (July 2011-2019).
The amount the market has gone up in the short time frame from March 2020 looks concerning. You might be thinking….
“What goes up, must come down.”
“The market can’t go up forever.”
“The quicker the rise, the harder the fall”
I was thinking this at first, but I don’t think it is as bad as it seems and heres why.
- The amount of money in our economy has gone up significantly. As of right now there is $2.18 trillion of US currency in circulation right now. In 2017 there was about $1.5 trillion.
Looks similar to a graph of the stock market right?…
I’ll read you a headline from CNBC News on April 9th, 2021
– “Investors have put more money into stocks in the last 5 months than the previous 12 years combined”
Households Got Wealthier
Wall Street Journal quotes, “U.S. households added $13.5 trillion in wealth last year, according to the Federal Reserve, the biggest increase in records going back three decades.”
Families did not spend as much money on cummuting expenses, eating out, services, and other retail items last year. Also, families recieved unemployment benefits. They put their extra money into the stock market. The American population “pumped” the stock market with their money.
Checking account balances throughout America increased during and after the pandemic. More specifically the lower income earners due to stimulus and unemployment checks.
If you’re wondering why the stock market has pumped so much here is the reason. It’s always a good feeling when changes in the stock market have a clear reason.
The Point
Picture yourself as a business owner, what would you do if all your customers had more money in their pockets to spend? Yup, you would raise your prices. This is the simplest explanation of inflation you’re probably telling yourself.
But let me ask you these questions….
- Are the higher prices you’re paying for a problem if you have more money to spend? Did things really change?
No, things are just changing on numbers you arent used to seeing. - Are your larger stock market returns significant if the prices of everything are going up?Probably not, so I wouldn’t worry too much on if the market seems euphoric right now.
Back To The Title of This Article
I think the higher pricetags on items are here to stay. The government and Fed have made a habit of increasing monetary stimulus (money printing) into the economy. It does not like like they will never do it again. This leaves Americans with more money in their pockets, and higher prices to go along with that. Its been going on for decades, why would it stop now?
Even the minimum wage is in talks of getting raised. Which only adds to the fact that higher prices will continue to stay.
The Common Trader 