Fifth Grade Finance
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Fifth Grade Finance

01/24/2021 — Market Mathematics

Somewhere in middle school, American students learn about the nature of negative numbers. Through intuition or a quick logical stroll, the keener young mathematicians know that the subtraction of a negative number resulted in a more positive difference. And so it is with the current market dynamic.

With the S&P index hanging out in the mid 3800s, an unassuming market participant would be forgiven for thinking the economy robust and its societal steward tranquil and optimistic. Reality doesn’t quite match up with this, and it vexes the mind to understand how and why this rally has once again taken flight. Apparently, in absence of truly good news on the economic front, all the rally needs for fuel is the subtraction of a negative.

Last week began amidst concerns of inauguration disruptions, riots, and violence. The fears held enough buyers at bay, providing a temporary respite from this never ending bull market, but once the clouds passed, the market took this a sign to resume its climb. As I’ve stated before, the underlying inertia propelling the stock market ever higher stems from a seemingly permanent zero interest rate.

With this in place, all that’s needed to continue this run is simply the periodic subtraction of potential negatives.