Is the Stock Market Set to Keep Rising?
Many wonder if the stock market will continue to grow indefinitely. While it's important to acknowledge that there will be periods of decline, similar to the 2008 financial crisis and the recent downturn due to the COVID-19 pandemic, historical data suggests that the stock market is bound to recover and continue its upward trajectory.
Historical Evidence of Market Growth
Data from major stock indices over the past few decades supports this view. For instance, the Sensex index from 1990 to 2020, the Dow Jones from 1986 to 2020, and the NASDAQ from the same period all show clear upward trends despite occasional dips and corrections.
Historicas growth in stock markets is often linked to population growth and economic expansion. As the population in a country stabilizes or begins to decline, as seen in Japan and Germany, the potential for the stock market to continue rising may diminish. This is because economies typically require increasing populations to sustain their growth.
Why the Stock Market Will Likely Keep Rising
Fundamental investors believe that stock markets reflect the underlying health and prospects of listed companies. If one accepts the notion that the stock market represents the best companies in the economy and that the economy will continue to grow, it follows that the stock market will also continue to grow.
The stock market is inherently a positive-sum game, driven primarily by the profits generated by companies. While individual stocks or indices may not rise forever, the overall stock market's long-term performance is expected to reflect the success of the companies invested in. Historically, this has averaged around a 8% annual return, though future results may differ.
It's worth noting that past performance is not a guarantee of future results, and individual investors' experiences may vary. Diversification into various asset classes, including bonds, is also advisable to mitigate risks.
The Role of Population Growth in Economic Expansion
Economic growth is closely tied to population growth. As population stabilizes or declines, economic expansion may slow down, which could impact the upward trajectory of the stock market. For instance, Japan's experience with population decline has shown that the stock market may stabilize or even decline if economic growth is affected.
However, the real question is one of confidence and pessimism. If population growth continues, so too will economic growth, leading to the possibility of sustained stock market growth. It's important for investors to remain confident and keep a long-term perspective, recognizing that short-term fluctuations do not necessarily reflect long-term trends.
In conclusion, while the stock market may experience periods of decline due to various economic and global events, historical data and fundamental principles suggest that the stock market is likely to continue its upward trend as long as the economy continues to grow.