Stock Market Has Strong Comeback, But Could See Some Volatility In Future

A Tennessee Tech professor says that the stock market up 14 percent since the start of last year is indicative of a comeback in money flow after COVID.

Dean of Tennessee Tech’s College of Business Thomas Payne said that this is due to consumerism driving the economy.

“Folks are spending again that’s coming back,” Payne said. “Also it is a recognition that the expectation at least over the next few months that would continue.”

Payne said that in looking forward, the market could face volatility due to various risks its faces. He said this stems from the fact that some sectors will come back factors than others, and the fact that some parts of the economy are undergoing structural changes as a result of COVID.

Payne said that an important part of ensuring the market’s stability will be getting people back into the workforce. With 70% of the economy dependent on consumer spending, Payne said it’s important to ensure personal wealth to continue money flow into the market.

“As people feel better about their financial position, you know they may not plan on retiring for 20 or 30 years, but when they see that 401k statement, or they see the value of their house go up,” Payne said. “They’ll spend more money, and that drive the economy too. It’s kind of  a psychological effect in part, something known as the ‘wealth effect.'”

Payne said that when people’s assets come up in value they feel better about spending. However the effect is the same when reversed. When there is volatility, there is less confidence in spending.

Payne also said the federal reserve has voiced concerns about the future of inflation.

“They’re still looking at inflation,” Payne said. “They believe that it’s temporary. But there are economists now that think ‘Well, everything’s temporary, but how long is temporary?’ And when you see higher inflation, you could see higher interest rates out in the future. Higher interest rates would mean lower evaluations for all of these financial assets including stocks. But if inflation is temporary, that stock market could sustain these levels for quite some time.”

Payne said when it comes to the market, it’s better to look at the way the market is heading, rather than where it’s been. While he doesn’t have any predictions, Payne said he thinks a good rule to have for one’s self when it comes to stocks is to make you have a diversification of investments.