Why the Stock Market Is Going Crazy Right Now

Why the Market Is Going Crazy Right Now

Part One of the Total Richness "Money Made Simple" Series

(a Total Richness 3 part series)

Just say the words "stock market" or "stock" and you'll see blank faces staring back at you. At least those of normal everyday folks. That's not to say that ordinary don't invest in the stock market. Even if they do, blank faces can still greet you.

Investing in anything is risky. Right now, investing in the stock market can seem daunting. If you have checked the stock market lately and wondered what in the world is going on, you are definitely not the only one.

One day technology stocks are climbing, the next day oil prices are jumping because of new developments involving the war in Iran, or something the President tweeted about regarding the war in Iran. Dumbfounding.

And somewhere in between another artificial intelligence company announces something that gets investors excited all over again. Add everything else that is getting our attention on a daily , if not, hourly basis like inflation, interest rates, political uncertainty and nonstop breaking news to the mix, and the market can start to look less like investing and more like somebody shaking a financial snow globe. It can seem overwhelming and scary. What and who can you trust when it comes to the financial news, the finance channels, advisors and so called experts.

This is usually the point where people who do not invest decide that the stock market is too complicated or risky for them. I understand why. Financial television does not exactly help when five people are talking at the same time about bond yields, crude futures, semiconductor demand, rate cuts and market corrections as if everyone watching already knows what those things mean. Bull market? Bear market? Now we have the kangaroo market? Really?

Here's the good news. You do not need to become a Wall Street expert to understand what is happening. You don't even need a finance or business degree. You just need to understand what the market is reacting to and, perhaps more importantly, why. So don't think that you cannot invest in the stock market or in anything for that matter. It's not rocket science.

Right now, one of the biggest stories affecting markets is the conflict involving this war with Iran and the uncertainty surrounding oil supplies. Iran sits in a region that is critically important to the world's energy market, particularly because of the Strait of Hormuz, a narrow shipping route through which a significant amount of global oil travels. When investors become concerned that oil shipments could be disrupted, oil prices can rise because the market begins anticipating that less oil might be available. So that's why the price of gas goes up or down. It depends on will we have more or less oil available.

You may be thinking, “Okay, but I don't buy barrels of oil, so what does that have to do with me?” You don't have to buy barrels of oil for it to affect your everyday life. Potentially is has quite a lot to do with you.

Oil does not just determine what you pay at the gas pump. Fuel is involved in moving almost everything we buy. Trucks deliver groceries. Ships transport products across oceans. Airlines need jet fuel. Farmers operate equipment. Delivery companies run fleets. Manufacturers use energy to produce and distribute goods. When fuel and energy costs rise, businesses often have to decide whether to absorb those additional expenses or pass some of them along to consumers. That's when we see prices start to rise. That is where something happening thousands of miles away can eventually show up in the price of an airline ticket, a delivery charge, in groceries or products sitting on a store shelf. The things you pay for on a regular basis.

This is also why investors start talking about inflation whenever oil prices rise significantly. If businesses are paying more to produce and transport goods, prices can rise. If inflation remains stubbornly high, the Federal Reserve may be less willing to lower interest rates or may keep rates higher for longer. Higher interest rates make borrowing more expensive, which affects everything from mortgages and credit cards to the amount companies pay when they borrow money to expand their businesses.

Now, you can see and understand how the pieces connect. A conflict affects oil supplies. Oil prices affect business costs. Higher costs can contribute to inflation. Inflation influences interest-rate decisions. Interest rates affect businesses and consumers, and all of those things can ultimately influence how investors value stocks.

That does not mean the market automatically crashes whenever there is a war or oil prices rise. In fact, this is one of the most important things to understand about investing. The stock market does not react to one single event in isolation because thousands of companies and industries are being affected in different ways at the same time.

For example, consider an airline. Higher fuel prices are probably not great news because fuel is one of its major expenses. Now consider an oil producer. Higher oil prices could potentially increase its revenue. A defense company may see investors anticipating additional government spending, while a company involved in alternative energy or energy efficiency may suddenly attract more attention. The exact same world event can hurt one business while benefiting another.

This is why headlines like “War Sends Stocks Lower” or “Oil Crisis Rocks Markets” rarely tell the entire story. It's not hard to read between the lines and guess how people will react. Think about how you would react to such news. Markets are constantly weighing one piece of information against another, and sometimes investors respond to bad news in ways that seem completely irrational until you understand that they are trying to anticipate what happens next.

That phrase is worth remembering: "what happens next?"

The stock market is not simply pricing what is happening today. Investors are constantly trying to guess what companies will earn six months, a year or even several years from now. See, it's a guessing game.

That brings us to artificial intelligence.

AI has become one of the most powerful investment themes in the market today because investors believe it could transform huge portions of the economy. When most people hear “AI stocks,” they probably think about a handful of famous technology companies, but the AI economy is much larger than the software we use on our phones and computers.

AI has been around for years. Now because it's accessible to everyone, we are discussing it ad nauseam. Artificial intelligence requires an enormous amount of physical infrastructure. It needs data centers filled with powerful computers. Those computers require highly advanced semiconductors, commonly called chips or microchips. They require memory, networking equipment, cooling systems and massive amounts of electricity.

Suddenly the AI investment story includes semiconductor companies, memory manufacturers, utilities, electrical equipment companies, cloud providers, data-center operators and many businesses that the average person would never immediately associate with artificial intelligence. Don't even get me started on SpaceX. That's a rabbit hole for later.

This is where investing becomes both interesting and dangerous. Whenever an industry becomes exciting, investors begin looking for companies that could benefit from it. That can create legitimate opportunities, but it can also create hype. A company's stock can rise simply because investors expect tremendous growth in the future, even before the company actually produces enough profit to justify the enthusiasm. Think of the billions of dollars Neta, Apple, Nvidia, Google, just about every company is pouring into AI.

We have seen this before.

The internet really did change the world, but during the dot-com boom, investors became so excited about anything connected to the internet that companies with questionable business models received enormous valuations and lots of money. The technology itself was revolutionary, but that did not mean every internet company was a great investment.

Artificial intelligence can follow the same basic principle. AI may completely transform how we work, communicate, create, manufacture products and operate businesses. That does not mean every company that puts the letters “AI” into a presentation automatically deserves your investment dollars. This is where doing your own research becomes incredibly important. Yes, you must do the research.

One of the easiest mistakes beginning investors make is assuming that the price of a stock tells them whether it is expensive or cheap. Someone might see one stock trading at $20 and another trading at $200 and automatically assume the $20 stock is the bargain. That is not how it works.

A stock price by itself tells you very little about whether a company is reasonably valued. You have to look at the business underneath that price. How much money does the company make? Is revenue increasing? Is it profitable? How much debt does it carry? Who are its competitors? Is there real demand for its products? What are investors already expecting from the company?

Most importantly, what could go wrong?

That last question is one I think people should ask far more often. When people become excited about investing, the first question is usually, “How much money could I make?” A much healthier question is, “How much money could I lose, and why?”

That does not mean you should be afraid of investing. It means you should respect it. There is a major difference between investing and simply chasing whatever is popular.

Investing involves putting money into something because you have researched it, understand what you are buying and believe it fits your goals and your tolerance for risk. Chasing happens when you buy something because everybody on social media seems to be talking about it, the price has already gone up dramatically and you are terrified that everyone is going to get rich without you.

That fear has a name: FOMO, or fear of missing out. Everybody has it. Everybody feels it. FOMO has probably separated more people from their money than almost any investing strategy ever created. Someone posts that they doubled their money on an AI stock. Another person says a semiconductor company is going “to the moon.” Somebody screenshots a giant options profit without showing the ten trades where they lost money. Before long, people who have never read a financial statement are throwing money at companies they cannot explain because they are afraid they are missing the next big thing.

That is not the money habit I want Total Richness to encourage.

Investing can absolutely be part of building wealth, but the real habit is not buying stocks. The real habit is learning how money works and becoming intentional about what you do with it.

You earn money. You save some of it. You invest some of it. Those investments have the opportunity to grow or generate income over time, which potentially allows your money to begin working alongside you. That is a completely different mindset from trying to turn $500 into $5,000 by next Friday.

It is also where investing connects to the bigger idea of Total Richness.

Wealth is not simply having more money. Wealth is having options. It is having savings when something goes wrong, investments that have had time to grow, income that does not depend entirely on the hours you work, and enough financial knowledge that every scary headline does not cause you to panic.

To be honest, the current stock market is actually a great classroom and now is the best time to learn. Don't put it off.

Iran and oil can teach us how global events affect prices. Interest rates can teach us how borrowing costs affect companies and consumers. Artificial intelligence can teach us about innovation, expectations and hype. Semiconductor stocks can teach us that even industries experiencing explosive growth can move sharply up and down. You do not have to predict exactly what the stock market will do tomorrow to learn from any of this.

Instead of constantly asking, “What should I buy?” start asking better questions. Ask these....

What exactly does this company do?

How does it make money?

Why is the stock moving?

What are investors expecting?

What could cause those expectations to change?

What is the risk if I am wrong?

Those questions are far more valuable than somebody giving you a stock tip on social media or youtube.

In Part Two of this series, we are going to take the next step and talk about what actually happens when you buy a stock. We will break down why stock prices change, how investors make money, what dividends are, why earnings reports matter and why an AI or semiconductor company can announce seemingly great news and still watch its stock price fall. Because the stock market really is not something reserved for wealthy people, professional traders or finance experts.

It is something you can learn. So don't be intimidated at all. And learning how money works is one more step toward creating a life of Total Richness.

Remember, wealth + health = Total Richness

**Disclaimer: Total Richness provides content for educational and informational purposes only. Nothing in this article should be considered financial, investment, tax or legal advice or a recommendation to buy, sell or trade any security. All investments involve risk, including the possible loss of principal, and market conditions can change quickly. Always conduct your own research and due diligence and consider consulting a qualified financial, tax or investment professional regarding your individual circumstances.

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