With the stock market consistently setting record highs over the course of the year, many analysts find it strange that we haven’t seen a pull back or a market correction. After all, how could it be possible for prices to be so high when earnings per share are so low by comparison?
Luckily, the folks over at Mercury News have written an article that explains their view.
For the market to crash, investors need to see a reason for why other people will want to sell — a reason that prompts everyone (or many) to sell and drive down prices. The market is fragile after all, because just a minuscule percentage of outstanding stock trading on an exchange sets the price of all of the outstanding shares from second to second.
They explain that they do not foresee this happening because:
“…investors are staying put these days and are comfortable with stock investments that have risen to new all-time highs. Thanks to 401(k)s and other retirement plans, we now have a population of self-taught individual investors that didn’t exist 30 years ago. The school of hard knocks has presented seven major downdrafts of 20 percent or more since the mid ’80s, and the lesson learned is that staying the course is what leads to the long-term financial security.
In short, a more financially savvy population means that people have a good understanding of where the market is but have the confidence in the economy to continue the run. Until something in the market shakes those understandings, people will continue investing in stocks.
To read the full story, go to mercurynews.com.
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