Here’s why I’m optimistic about the stock market in one word: INFLATION. Yes, experts will say that inflation has been the primary driver of the stock market’s losses so far this year, and that’s true. Yes, inflation is a problem that devalues our currency and causes the Federal Reserve to raise interest rates in an effort to curb it, which ends up putting pressure on stocks as it makes bonds perform better.
However, the phenomenon that I haven’t seen any financial journal or stock jock newsletter talk about is the reality that a stronger dollar will eventually bring up the value of stocks. In other words, as companies react to inflation by raising prices, their profits will go up and they will pass along the dividends to investors. As profits rise and wages catch up to inflation, investors will have more money to invest and the implied value of stocks will also rise.
When Ford Motor Company stock originally came out on the market on July 30, 1982, it cost $0.87. Now it’s a whopping $12.82 (It was almost $20 last year, may be a buying opportunity!). That’s a 1,374% increase in 40 years. If you had invested $10,000 back then, it would be $137,400 today, not too shabby. Part of the reason for this increase in value is of course, Ford has grown as a company and makes more money to pass on to investors, but inflation also plays a part.
When inflation prices into the market, it will raise values. I believe the stock market will continue to rise long-term for several other reasons including the fact that it has always grown, companies will continue grow, new companies will rise to the forefront, and inflation will continue to push values higher.
As my realtor friend Chris Martin always reminds me, “The best time to buy a house was 10 years ago, and the best time in 10 years to have bought a house, will have been today.” Inflation marches on. Values keep going up. The best time to acquire assets is now so that your wealth will continue to maintain its buying power and manifest more opportunities for your future.
When Daniel is not giving financial advice or managing investments, he enjoys renovating properties, real estate investing, drinking coffee, hanging out with friends, spending weekend trips in his camper van, and exploring the outdoors on a hiking or biking trail in his hometown of Roanoke, VA and beyond.