Gone are the days when stock Markets used to reflect the status of economy, dynamics of stock markets keep changing every few years…. Currently a new phenomenon is being seen across the world in all economies and their Stock Markets… This is called “Reverse Market Crash”
Now lets understand Reverse market Crash with examples
Our neighbours Pakistan’s Economy has been collapsing in last 1 year, everyone would have heard its news right, but its Stock Market is up 40% in last 6 months….
Similar examples can be seen in economies like Venezuela, Argentina, Turkey, Iran, etc… Their economy kept crumbling and stock market kept going up….
This phenomenon is being called Reverse Market Crash, the same is anticipated to happen when the Interest rate cycle reverses and Reverse Market Crash is expected in US and other markets Globally, with anticipated rise of 30-40% in Indexes when their economy starts declining….
Now in simple terms this should look Insane, Unjust and Unacceptable to all of us, but if something is happening there must be a reason for it to happen right, Whats the reason….
1) 50% of world’s wealth belong to 1% people right, this wealth is a concentrations of wealth in Financial Assets, these people own Financial assets and not Cash…:
2) When any sort of crisis is anticipated, this concentration of wealth narrows down even further to limited stocks which mainly are the large stocks of that country forming the Index…. Means companies like Reliance Infy Hdfc in India, Apple Amazon Meta etc in USA, and similar large stocks of those countries will receive more inflow of money in their stocks resulting in pumping of share prices, resulting in rise in stock prices…
3) Whereas the remaining 99% will be getting poorer because of Inflation and no earnings leading to them spending their savings on the products sold by 1% increase their wealth even further….
4) So if the wealth is flowing, their income earnings and everything will go up, resulting in Increase in Indexes….
5) Now why it is termed reverse market crash, Because size of the Market(Economy) is collapsing but Stock markets keep going up …. So 2024 if you see Markets rocketing globally, remember this is result of shifting of wealth and concentration of wealth to even fewer Hands
Question is, can we do anything about it? No
Can we benefit from it? Yes, Index Funds
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