The S&P 500 index, which essentially tracks the top 500 companies based in the U.S., is set to hit all-time highs. Wait, what? How is it possible for the stock market to hit all-time highs during a pandemic where hundreds of thousands of people have sadly lost their lives? The markets are strange mystical beasts.
The markets also do not reflect the economy. This is something to ponder if you’re hearing this for the first time. While it’s true that real-world events that affect the economy can (and do) affect the stock markets, share prices are not reflective with what’s currently happening with the economy.
The stock markets are strange beasts
Think about it. The U.S. is pumping trillions into the economy. It’s inflating the dollar, sending out stimulus checks to the population, and attempting to tackle the COVID-19 pandemic. This is perfect grounds for the stock markets to contract, right? Well, they did. Sort of.
We experienced some severe drops earlier this year, but then saw record gains as investors piled in to pick up more affordable stocks. Just this week alone, the S&P 500 index is on the verge of an all-time high, which is something I didn’t think I’d be able to write anytime soon. The current record is 3,386 and it was sat at 3,349 on Friday at close.
Investors tend to react to news and fear by buying and selling stocks, which can then in turn paint a somewhat clear picture of the current state of the economy and its outlook. The thing is, this isn’t really applicable right now. And the S&P index is heavily skewed to just five companies: Apple, Microsoft, Alphabet (Google), Amazon, and Facebook.
The top ten companies (including the aforementioned five) form around a quarter of the S&P 500 index. It’s no coincidence that Apple, Microsoft, Alphabet, Amazon, and Facebook are doing pretty well overall right now. In fact, tech stocks like Zoom and others are soaring high while brick and mortar-based stocks lag behind.
So is now a good time to invest?
If you’re looking to time the market and make some profits, that’s a hard question to answer. I simply don’t know what’s going to happen. No one does. There are those who claim that plenty of stocks are overpriced, making it harder for new investors to build up a portfolio, while others believe the markets will continue to climb.
For most investors, myself included, it’s usually best to simply continue buying shares. Regardless of the price, so long as you do your checks and the stock itself isn’t heavily overvalued, now’s a good time as any to bolster your portfolio. I’ll be continuing to purchase shares in a variety of companies I believe in.
Buying shares on a regular basis means you don’t miss out on the lows, allowing you to average out your cost over the long-term, which as history shows is a sure way to see good returns. As for the S&P and the stock markets in general, it’s an existing time to get into investing as there’s never a dull moment.