Stimulus Spending Driving Stock Market Surge

The performance of stock markets this year has proven many expectations wrong. Despite the weak economy, stock markets have continued to rise. While many of us believed that this rise was artificial, buoyed by the federal government’s stimulus spending, proof was hard to come by. Until now, that is.

Recent surveys have demonstrated that our hunches were correct, that those receiving stimulus checks plan to invest significant percentages of their stimulus checks in the stock market. With the latest round of stimulus spending being the most generous to date, it’s perhaps not surprising that so much of this money is flowing into stock markets. It also proves that the Greater Fool Theory remains in effect, at least for now.

But stimulus spending can’t keep markets buoyed forever. At some point economic fundamentals will reassert themselves and markets will correct. When that happens, those who rushed to take advantage of what they see as a never-ending stock market rise will find out the hard way that what goes up must come down.

Not Just Stocks Getting Boosted

Stock markets aren’t the only thing rising as a result of all this stimulus spending. The money supply has grown explosively too, and it’s only a matter of time before prices catch up. You’ve probably already seen gas prices rising, and food prices are climbing in many areas. Real estate markets have seen incredible price growth in many areas of the country too. All of this has combined to drive up the cost of living for most Americans. And it could get worse from here.

Perhaps that’s why so many Americans are putting their free money into stocks, hoping to make more gains before prices begin to rise out of control. But by putting their money into stocks, they’re taking a major risk, with the potential for prices to drop dramatically when stocks return to reality.

What Could Push Stocks Down?

Stocks have been high-flying for so long that many investors are actually starting to believe that a crash is no longer possible. After all, we’ve seen at least two major corrections already over the past few years, including a 35% dip in the early months of 2020. Yet stock market indexes have shrugged those off and continued to climb. So what could send stocks tumbling?

1. No More Stimulus

The stock market run of the past year seems to have been caused by the massive amounts of stimulus the federal government poured into the economy. But it’s highly unlikely that the political will exists for this amount of spending to continue in the future. The national debt is spiraling out of control, inflation is set to rise, and that combination could put pressure on Congress to knock it off and get back to reality. If no more stimulus is forthcoming, those who bought into stocks near the top of the bubble could end up ruing their decision.

2. Wall Street Failures

The 2008 financial crisis was a systemic failure, but the first indications that something was amiss came in mid-2007, when Bear Stearns began to see some difficulties. Regulators claimed that they were on top of the problem, that issues were isolated just to Bear Stearns, and that weakness in mortgage backed securities and the housing market wouldn’t spread to the wider economy. They were wrong on all counts.

This time around we could be seeing the beginning of a similar situation, as the failure of hedge fund Archegos has left major banks and financial institutions exposed, subjecting them to tens of billions of dollars of potential losses. Some are calling Archegos’ failure the biggest thing to hit markets since Long Term Capital Management in 1998. The question investors will ask themselves is, is Archegos just a one-off, or is it a precursor of even more financial pain for Wall Street in the coming months?

3. More COVID Lockdowns

Just because COVID vaccinations are rising and deaths are falling doesn’t mean we’re out of the woods yet. Governments love the additional power they’ve been able to wield as a result of COVID, and they don’t want to give it up if COVID disappears. While public weariness with continued lockdowns continues to put pressure on governments to ease up, don’t count government out just yet. The threat of further lockdowns hasn’t dissipated one bit.

Between fears of more contagious COVID varieties and the threat of other diseases that might pop up to take COVID’s place as the bogeyman du jour, we can’t rule out more lockdowns in the future. And just like previous lockdowns, any new lockdowns could drive the economy into recession once again.

What Can You Do to Protect Yourself?

If you’re like many investors nowadays, you’re probably wondering what you can do to protect yourself and your assets against the possibility of a stock market crash. You probably remember how stock markets lost more than half their value during the 2008 crisis, and that recovery took years. Can you afford to lose money in the next crash? Do you have a decade or more to allow your investment assets to recover from their losses? Probably not.

That’s why so many investors have turned to gold and silver to protect their assets against loss. Gold and silver performed well during the 2008 crisis, gaining 25% while stock markets lost more than 50%. Investors are banking that gold and silver will perform the same way during the next crisis too.

If you have investments that you want to protect and you’re worried about the future direction of stock markets, now is the time to start thinking about protecting your assets with gold and silver. Many investors kicked themselves in 2008 and afterwards for not investing in silver and gold earlier. And during the next crisis, many more investors may regret their decision to remain in stock markets and not buy gold and silver.

Don’t let yourself be one of those investors. Call the experts at Goldco today to find out how you can protect your retirement savings with gold and silver.

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