Why does the stock market keep rising, setting record after record? The economy really isn't that good. All the experts agree that most stocks are wildly overpriced, compared to the performance of the companies the stocks represent. The global economy is showing sure and certain signs of a slow down. So why does the market keep rising?
Simple. Supply and demand. In this case, the supply of money and demand for stocks keeps growing, while the actual number of stocks stays relatively stagnant. (Yes, this is a bit oversimplified, but still effectively true.) People, millions of people, have money taken out of their paychecks every two weeks or so. This money is transferred into their retirement accounts, whatever form they might take. This money is then managed by brokers (who take their cut) and invested in stocks, bonds, and money market accounts. Of these, stocks are the traditional money makers. The bond market is terrible, and has been for years - one of the effects of very low interest rates. Money markets aren't much better, since we're printing dollars by the container ship load. So that leaves stocks.
Every two weeks, a new deluge of money hits the brokerage houses. Who must then invest this money in order to justify their very existence. So they mostly buy stocks with it. What stocks do they buy? The stocks that other brokerage houses are willing to sell to make a profit for their investors. So the price goes up, and all the brokers make a little money on each trade, plus a little more in management and maintenance fees.
And two weeks later (every week, really, since companies aren't all on the same pay cycle) it all happens again. And again. And again. Driving the prices ever higher, with dollars seeking stocks.
When does the market go down? When the brokers get spooked by something, whether it's a real threat or not. They're a bit like horses that way. When they get spooked, they run away, selling stocks to take the lowest loss, or to lock in a long-term gain. This is when the short sellers make their fortunes.
But the flow of money into the system keeps coming, floating all boats. The dip ends, and the market rallies. The prices stabilize, and then raise back up again.
When will the market start going down for a long term? When money starts leaving the system, by people withdrawing their funds from their accounts. Or when debts force companies, especially banks and other financial institutions, into bankruptcy. That's when money really gets erased from the system.
Our elders have their pension funds, paid by their companies. We have retirement accounts, dependent upon the market. Our children have debts.
Nothing lasts forever, and the current trend of rising markets must eventually end. When that happens, there will be a panic of selling and profit taking, driving the market prices down even faster. This is how the system works.
The stock market, as a whole, has very little to do with the actual financial health of the companies whose stocks are traded. It operates on the flow of money, and rumors driving the confident yet skittish herds of brokers this way and that. Plus the occasional predator preying on the herds, and the parasites taking their drops of blood. It is a human institution, after all.