Why don't stocks/ equities go down on a MACRO basis?

[GON]

@John105 posted the below in another thread and I thought it is an interesting topic- why since 1994 have stocks not gone down on a MACRO basis? I know the dot com bubble and the 2008 falls in the market, but overall stocks have been a sure thing on a MACRO basis for a few decades. Are businesses run better? Lack of competition/ restraint of trade? Total focus on the bottom line by publicly traded corporations? IRA/ 401k instead of pensions? What are your thoughts......

I actually thought 3.37 was bad but I was in the home stretch so I lived with it. Plus it was a home equity not a mortgage. My buddy said he currently has a heloc prime minus 0.75 and it’s at 7.75%. Factor in the interest isn’t deductible and that’s a bad situation (he got it when interest was deductible I mean even I remember a time where you have a pulse of at least 40 and you’re approved for $100k so why not if no fees and no minimum draw)

When you say generational think of this. I’m of the generation where stocks don’t go down. This dates all the way back to 1994. Until 1994 and from my birth? Stocks were pretty much hit or miss.

 

[BMWTurboDzl]

No 1 : Central Banks are always there to prevent panics.
No 2 : Not all areas of the economy experience the same level of irrational exuberance (i.e. inflated stock price) nor are they impacted equally by bad economic news.
No 3 : Institutional investors (ex Pension, Mutual funds) have a well diversified portfolio unlike many individual investors.
No 4 : There's no safer place in the world to invest than the US Economy because of the USD hegemony and the rule of law.

 

[Oro_O]

Two underlying reasons. One sound, one artificial.

1) Because the long-term macroeconomic trend is upward. Stocks track that. Economies grow by two means - a) increased productivity per worker, or by b) more workers. Very basic economic concept from Ec 10. In more stable modern times, that trend is always upwards despite short term volatility. Technology has greatly enabled the a) component in recent times despite, labor force participation rate falling (peak was about 2000 at 67%, now around 63%). Of course population growth and immigration add to the b) component, too.

So a “rising tide lifts all boats” would be another way of saying it, succinctly.

2) The major indexes by which stock markets are measured are often artificially rigged - lower performers are dropped and up-and-comers are added. For example, the Dow routinely drops stocks whose price underperforms. Here’s a historical look at that:

https://en.m.wikipedia.org/wiki/Historical_components_of_the_Dow_Jones_Industrial_Average

 

[mk378]

Point 2 above is a really good one. When a stock value goes to (or near) zero because the company went bankrupt, it isn't just taken out of the Dow etc-- it is also delisted from the whole exchange like it never existed. Averages don't continue to reflect that money lost.

 

[Vil_Riker]

Fiat currency combined with deficit spending.

 

[Tom NJ]

IMHO, the long term positive bias of stocks is due to human ingenuity. People always find a way innovate and make money. Those who succeed remain and those that don't fade away.

The last line in the movie War Games is "The only winning move is not to play." When it comes to investing in stocks, the only winning move is to play!

 

[MSCH]

@John105 posted the below in another thread and I thought it is an interesting topic- why since 1994 have stocks not gone down on a MACRO basis? I know the dot com bubble and the 2008 falls in the market, but overall stocks have been a sure thing on a MACRO basis for a few decades. Are businesses run better? Lack of competition/ restraint of trade? Total focus on the bottom line by publicly traded corporations? IRA/ 401k instead of pensions? What are your thoughts......

low interest rates favor stocks.
risk reward scenario in full play.
that is historic.
hard to find any five year period in history where stock market ( aka Sp500) was lower than it was before.

turn interest rate up to 10% or higher like in the late 70's into the early 80's and remember what that was like
and you'll see why.

 

[MSCH]

Point 2 above is a really good one. When a stock value goes to (or near) zero because the company went bankrupt, it isn't just taken out of the Dow etc-- it is also delisted from the whole exchange like it never existed. Averages don't continue to reflect that money lost.

there are only 30 companies listed on the Dow and history is replete with companies being removed from that index.
Exxon Mobil is still around, but not on the Dow anymore. It is still a big company but not big enough.
GM too but for different reasons.
anyway, the Dow isn't that great of an identifier, the SP 500 is a little better but a total market index is probably the best way to show that stocks are probably the best investment over the long haul... just because.