DON'T TRUST THE STOCK MARKET | WHAT YOU MUST KNOW!

What's up guys, it's Graham here. So it's official: as of May 26, the S&P 500 did something that very few people would have ever expected to happen a few months ago. It crossed above the very important psychological threshold of—wait for it—3,000. That's right! We're now trading at the very same level as we saw back in October of 2019, only 7 months ago.

I'm sure a lot of people find this surprising given the absurdly high unemployment rate, the lack of travel, and many businesses being shut down. And yet, despite all of that, we have a stock market that continues to rally without any signs of slowing down. However, there's still very much a looming concern that we're getting ahead of ourselves here; that we're about to see a huge upcoming collapse, and this is just a euphoric push before everything goes to—well, you know.

So without further ado, let's go into these specifics about what's actually driving all of this growth right now, whether or not it's too late to invest into the markets, and if we're about to see a giant sell-off coming soon. And then, they're gonna be putting my money where my mouth is, by investing $50,000 within this video. If you watch it until the very end, I'm not sure how many people actually show their investing live on YouTube, but I could not think of a better way to show my commitment to the topic of this video than actually doing what I'm talking about.

So if you guys appreciate that type of openness, if you wouldn't mind obliterating the like button with YouTube's algorithm, it greatly helps me out a lot. And if you do that, I promise you another drum cover in next week's video. I'm thinking maybe "Schism" by Tool, but you guys let me know down below in the comments.

So anyway, with that said, make sure the like button has now turned blue. You know what? I've always wanted to do this. All the vloggers seem to do this; let me try this out. Okay, so I don't think we need much of a background in the current situation, so I'm just gonna sum things up very quickly from an investment standpoint, since a lot of this is self-explanatory.

In the beginning of March, almost every major economy went into a mandatory shutdown where people were advised to stay at home. Businesses were forced to shut down, and for the most part, everything came to a screeching halt. This is when many people faced the very scary realization that they might not have a job to return back to and many businesses might be forced to permanently shut down. Depending on how long the stay-at-home orders are in effect, we could be in for a very severe economic mess by the time all of this is over.

This caused a widespread stock market panic as we saw some of our single worst days ever in history. We hit multiple stock market circuit breakers as a major sell-off continued, and that left us all wondering how much worse can things get. But wait, what's that? The sky? Is that a bird? Is that a plane? Oh wait, no, that's Jerome Powell with his money printer! Just kidding, it was a joke.

So, in response to some of this economic fall, the Federal Reserve stepped in. The largest stimulus ever was passed at three trillion dollars, and since then, the stock market has seen a rather quick increase, leaving a lot of people to feel like they've missed the boat. Remember, just two months ago, articles like this were a dime a dozen that talked about the S&P falling to 2000 or even 1700.

For every one article with an optimistic view, there were dozens of others painting a much more devastating picture. Even now, companies like JP Morgan are warning that the stock market momentum might soon be slowing down. So in order to determine exactly what's going on, especially because so many companies have been hit incredibly hard, let's look into this a little bit further.

I'm going to be showing you guys what's really driving all of this growth because trust me, I have a feeling it's not what you would expect. So we're going to begin by looking at the S&P 500, which is an index that tracks the top 500 publicly traded companies here in the United States. It's weighted overall by the company's market value; the more valuable a company is, the more it could influence the entire price of the S&P 500.

This is really important for me to mention because out of the 500 publicly traded companies out there, only six of them make up 25% of its entire value. Those companies are Facebook, Amazon, Apple, Netflix, Google, and Microsoft—otherwise known as the acronym FAANG. Then the other 494 companies make up the remaining 75%.

Now, what's even more interesting is that if we look at every single company within the S&P 500 year-to-date, we could see that 395 of them have lost value, and the remaining 110 have seen a moderate gain since the beginning of the year. So if three out of every four companies in the S&P 500 are losing money, then why is the S&P 500 going up in value?

Well, that's because the few remaining companies that are doing well are doing really well, and they're becoming very valuable. Just this year, Microsoft is up over 16%, Apple is up over 8%, Amazon is up almost 32%, Facebook is up almost 15%, Google is up over 5%, and while we're all home just chilling, Netflix is up 32%.

So given that all of these companies are online and doing exceptionally well during a time where we're all online, it's not surprising that a lot of the growth is driven only by a few companies who are set up perfectly for a time like this. After all, we're sitting here watching YouTube right now, and that is all thanks to Google. So for Google and the YouTube algorithm, we have—thank you very much!

Anyway, that's why the S&P 500 has risen so much while the majority of the S&P 500 is at a loss for the year. This growth is driven by some of the largest and most powerful companies in existence who have made themselves invaluable during a time where most of us are not leaving the house.

Which, let's be real, if you could start a business or a service that people could use without leaving their bed, it's basically a license to print money. Now as for whether or not this is concerning to you as an investor, it's yet to be seen. Since technically when you go and buy an index fund, you're really placing a significant portion of your money within a few very large companies.

But it is important that if you go and invest in the S&P 500, or really any index fund for that matter, that you really understand where exactly your money is being invested and where it's going, so you're not caught off guard. Another company just recently analyzed all of these findings, and frankly, the graphs just speak for themselves.

These FAANG stocks have by far outpaced and exceeded the entire growth of the rest of the stock market, and over time, they're becoming increasingly more valuable. This just means that this could most likely become the new normal, as a few very large companies lead the entire stock market as they're able to reach billions of people with the power of the internet.

I think this type of growth is going to become more common as we become more and more centralized online with technology. Not to mention, if Tesla gets included to the S&P 500 by the end of the year, we may no longer have the FAANG acronym anymore. We could just end up renaming it instead to FATMANG. I think someone needs to get this trending so it can actually be a thing because seriously, FATMANG is so much better than FAANG!

Anyway, these findings also mean that the industries that were severely impacted by the illness—like, let's say, restaurants, travel, and hospitality—only make up a relatively small percentage of the overall index. Or really, in other words, about 25%. That means that even though 25% of the overall S&P 500 got hit really, really hard, the remaining 75% is doing rather well or exceptionally well.

Now, besides that, we can't deny that the Federal Reserve has also had an impact on the stock market's growth as well. They've openly said that they'll do whatever it takes to prevent our entire economy from collapsing, and that's given investors a lot of confidence to go and jump back into the markets.

So much so that it was found that the most common use of the stimulus check across all income brackets was investing back in the stock market. That's right! Stock trading increased ninety percent following the week after receiving a stimulus check for the income brackets between thirty-five and seventy-five thousand dollars a year.

Stock brokerages also saw a major boost in business as well. Charles Schwab reported a record amount of sign-ups—over six hundred and nine thousand of them to be exact. Another stock trading app saw a 300% increase in trading volume. Not to mention, the free stock trading app Webull is going to be giving you 2 free stocks when you use the link down below in the description and deposit $100 on their platform, and one of those stocks could be valued up to one thousand four hundred dollars.

So again, if you want two free stocks, use the link down below because you may as well, because they're free! Anyway, from my purely anecdotal experience, I could tell you when the stock market fell, it was pretty much everything anybody talked about. I would walk into my real estate office, and we would talk stocks for hours. I would even have multiple group texts going with my friends about the stock market.

Business and finance topics dominated the headlines throughout the crisis, so I think it's reasonable to expect that all of a sudden, people saw a newfound appreciation for investing and saving money. Combine that with several monumental stock market drops, really low interest rates, and the largest stimulus ever, and people are just gonna want to learn more about investing—especially at a bargain price.

However, there is a word of caution when it comes to all of this. Just be aware that investing right now is going to come with extreme volatility, meaning that as soon as some good news comes out, people are gonna be rushing into the stock market, boosting prices because they don't want to be left out. At the same time, if bad news comes out—like we will inevitably have—that's gonna cause people to panic. They're gonna pull out of the stock market; they're gonna think this is the crash we've been all waiting for, and they're probably gonna end up losing money.

It's really vital right now to invest for the long term, and as Warren Buffett says, don't go and buy individual stocks; instead, go and invest in index funds. For the majority of people out there, a simple broad index fund is going to be the best option long-term.

This means instead of going and buying individual stocks, you could invest in all of them in one fund at the exact same time. The benefits of doing this are that if a few of those companies don't do well, you have a whole bunch of others that can more than make up for it—like FATMANG. Likewise, if a few of them do well, you'll get to enjoy that benefit on a small scale consistently over the long term.

It was found that these index funds even outperform the most advanced hedge fund managers, so that's a huge incentive to go ahead and do this. As a show of good faith, I'm gonna put my money where my mouth is and invest fifty thousand dollars right now in a broad market index fund. I'm gonna grab my computer right here... here it is! And we're gonna go to my computer screen right now.

So I just logged in to one of my stock trading accounts, and I'm going to invest in SCHB, which tracks the largest twenty-five hundred publicly traded companies in the United States. We'll get this as close to fifty thousand dollars as I can, and I'll submit my order. There we go! Done!

No, I'm doing this because, one, the current price of the stock market is not deterring me from investing and doing what's called dollar-cost averaging—which is where I will buy into the market consistently over a period of decades. Inevitably, sometimes I'm gonna buy high, and sometimes I'm gonna buy low, but long-term, it's all gonna balance out.

I'm really just investing with the expectation that 10 to 20 years from now, the price is gonna be much higher than it is today. Maybe we could look back at this and say I've lost money, or maybe we could look back at this and all of a sudden, I look like a genius! But no matter what happens, I'm investing consistently to hold long-term, and this is money that I don't plan on using for a very long time.

I basically just put this money in jail for the next 20 years, and whatever it does until then does not matter to me. Of course, this also comes with the disclosure that the stock market is not the economy, and what we see happening day to day might not necessarily reflect the price of the stock market, for better or for worse.

So instead of trying to predict what's gonna happen short-term with the stock market, it's usually better just to join it, invest long-term, and even if you see a drop in your account, as long as you're diversified enough, you should come out of it the other end okay.

So remember, in the short term, anything can happen. We have new stimulus plans pretty much coming up every other day at this point, one of which now includes four hundred and fifty dollars a week as an incentive to return back to work. We have the end of the unemployment benefit coming on July 31st, which we have no idea what's gonna happen after that.

We have the Federal Reserve doing whatever it takes to keep us afloat. All of this news is going to play a role in how the stock market performs, and I'll be honest, we have no idea what's gonna happen. I pretty much guarantee back in March, almost no one would have predicted that we would be here today, almost back at 3,000.

Who knows? In the short term, maybe we just continue to climb even higher, or maybe we end up going back down. In the long term, I am still very much optimistic, and the same strategies that worked a few years ago are still in play and will still work today.

But do keep in mind that one of the main reasons the stock market is going up so much is that it's really driven by a few very specific companies that happen to be doing exceptionally well right now. Those are the ones that are driving a large portion of the market right now while so many other companies are down.

Just look at Amazon hitting its all-time high, as pretty much everything is shut down. Netflix also hit its all-time highs, so did Facebook, and many other tech stocks are not all that far behind. Keep that in mind the next time you invest in the S&P 500, but don't let that discourage you from investing consistently and investing long-term.

As far as what I think is gonna happen, I have a feeling that eventually things will return to normal. People spending will begin to increase, and then at that time, we might begin to see some inflation. Right now, inflation is not that big of a concern because not many people are spending money, but once that starts increasing, then it's really gonna be up to the Federal Reserve to keep that in check.

Once we go out a little bit further—let's say four to seven years—I can't help but think that most likely our tax rate is going to increase. There's even been a new proposed tax plan that would end up increasing taxes on incomes over $400,000 a year, as well as capping and limiting some deductions. So I think long-term we'll probably have to find a way to pay for everything, and raising taxes seems like the most logical way to do it.

But until then, make sure to keep investing consistently, keep investing long-term, keep smashing the like button, keep subscribing, and make sure to get your two free stocks down below in the description. So with that said, you guys, thank you so much for watching! I really appreciate it as always. Make sure to subscribe and hit the notification bell!

Also, feel free to add me on Instagram; I post there pretty much daily. So if you want to be a part of it, feel free to add me there as well. On my second channel, The Graham Stephan Show, I post there every single day I'm not posting here. So if you want to see a brand new video from me every single day, make sure to add yourself to that!

And my podcast, by the way, that I just started up—the first episode is already live, so that's down below in the description as well. As usual, get your two free stocks – one of them is valued up to 1,400 dollars—all of that is down below in the description.

Thank you so much for watching, and until next time!