Why the Stock Market Keeps Going Up? :: SPY vs. IWM
IWM - 2000 small-cap domestic stocks
SPY - 500 of the largest cap U.S. stocks
Why do these two charts look so different?
Money Flows. SPY is a Broad-Based Index. Money flows into SPY through 401Ks, pensions, investments, etc. There is a lot of "passive" income. This is akin to the bond market. The government buys over a trillion in bonds each year. Keeping rates low. In a negative real rate environment, the stock market goes up as long as there is an accommodative monetary policy (low interest rates). What if the government stopped buying bonds? Then interest rates would no longer be low. Stock market sells off. IWM however, is more independent from money flows. Of course, it still relies on QE but, there are not as many recurring automatic investments (flow). IWM is at the same level it was back in February. Since, then SPY is well over 10%. As long as money is flowing from the central bank to buy bonds, there will be investments that find their way into Broad-Based Indexes like SPY.
Everything in the stock market is over valued or fully valued not much of this stock market is cheap. So how does it keep chugging up. FLOWS....
SPY - 500 of the largest cap U.S. stocks
Why do these two charts look so different?
Money Flows. SPY is a Broad-Based Index. Money flows into SPY through 401Ks, pensions, investments, etc. There is a lot of "passive" income. This is akin to the bond market. The government buys over a trillion in bonds each year. Keeping rates low. In a negative real rate environment, the stock market goes up as long as there is an accommodative monetary policy (low interest rates). What if the government stopped buying bonds? Then interest rates would no longer be low. Stock market sells off. IWM however, is more independent from money flows. Of course, it still relies on QE but, there are not as many recurring automatic investments (flow). IWM is at the same level it was back in February. Since, then SPY is well over 10%. As long as money is flowing from the central bank to buy bonds, there will be investments that find their way into Broad-Based Indexes like SPY.
Everything in the stock market is over valued or fully valued not much of this stock market is cheap. So how does it keep chugging up. FLOWS....
Comment:
SPY is quite literally 5 stocks.