Personal thoughts on the stock market
The recent massive market drops over the last 2 days reminds me of all the Jim Crammer memes on the internet, which are a joy to look at
https://twitter.com/elonmusk/status/1860783414938571176
The market’s sharp 5% decline following the Federal Reserve’s decision to delay anticipated rate cuts raises some interesting questions. On the surface, postponing two potential 0.25% cuts hardly seems to justify such a dramatic reaction. However, this needs to be viewed in the context of the remarkable bull run we’ve experienced from 2021 to 2024, where the market has nearly doubled from its pre-COVID levels.
What I find particularly alarming is the growing divergence between market performance and economic reality. While corporate profits reach record highs and the stock market continues its upward trajectory, many Americans face persistent challenges with inflation and job security. The wealth concentration is particularly telling – the top 10% of Americans now hold approximately 70% of the nation’s wealth, primarily in stocks and real estate.
One other concerning trend I’ve observed is the emergence of a new trading culture centered around social media platforms like Reddit’s WallStreetBets. The proliferation of zero-day options trading among retail investors represents a significant shift in market participation patterns. While I understand the allure of quick profits, the reality is that these instruments often function more like lottery tickets than investments.
From my analysis, the odds are heavily stacked against retail traders in these scenarios. Market makers have developed sophisticated systems to price in volatility, making consistent profits from short-term trading exceptionally challenging for individual investors.
What many retail investors might not fully appreciate is the extent to which algorithms now dominate market trading. Recent reports indicate that over 60% of market trades are executed by automated systems. Combined with market makers’ access to order flow data, this creates an environment where short-term trading becomes increasingly difficult for individual investors to profit from consistently.
Warren Buffet has said in many interviews that retail traders should basically only buy and hold a good stock for the long run. I believe I even heard the same opinion from Sam Altman in an interview from 2 years ago, saying that retail traders no longer have any edge against the market makers and should also stick to long term buy and holding of good stocks which he gives his own experience of buying APPL as an example. Simply put, for someone without time to research stocks, just buy the market indexes.
Typically speaking historically at least, high inflation also leads to higher stock market.
https://www.linkedin.com/pulse/peak-inflation-stock-performance-lessons-from-1970s-brian-levitt
Although the base case indicate that the stock market will rise, it seems that at the end of the day it will likely come down to whether the spending cuts proposed by Elon Musk for the new US administration finally triggers a short-term recession due to the drop in government spending together with many consumers seemly tapped out in terms of their discretionary spending.
* Take any prediction here with a grain of salt, this is only a personal outlook and should not be used a predictor of market performance.