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Business/Finance See other Business/Finance Articles Title: Is There a Disconnect Between the Stock Market and Our Economy? Is There a Disconnect Between the Stock Market and Our Economy? As US businesses go under and unemployment claims surge, why does the Stock Market behave as if nothing is wrong? The short answer is that the New York Stock Exchange is not the economy. The more complicated answer is that, well, the stock market is like a smoky mirror image of how the economy is going and how investors predict it will go. Right now, the bets are on a corona virus vaccine that will open everything back up. Yes, some businesses, like videogames, grocery stores, and cable TV, are doing just fine as consumer behavior is altered by staying home. As Americans continue to quarantine and authorities shut them out of restaurants, sports arenas and just about everywhere else people gather in large groups, our economy is still in a pandemic induced recession. So, what is the disconnect? Now, as the Dow has recovered and hovers in 28,000 territory, it is obvious that the world economies have improved since the spring. Again, they are nowhere fully healed. But the Federal Reserve and the U.S. government can take a bow for the comeback. The trillions of dollars poured into the economy, coupled with the rising hopes for a vaccine were exactly what the market needed: investors who look past current poor performance to a hopeful future. In the short haul, investors are banking on another trillion or so to prop up the economy until a safe, tested vaccine hits the street. The bad news, which could bring stocks down again is the political squabbling between the White House and the Congress over who gets what and how much. The Senate adjourned without passing the big- bucks version of the House’s stimulus bill as the election year finger pointing and political posturing continues. Then there is the positive news from the rest of the world — Europe in particular. Parts of the US have put the brakes on a quick reopening, but Europeans are speeding up the process as their corona virus numbers continue to drop. That good news from overseas helped lower the US dollar exchange rate and provided a needed lift in publicly traded businesses that earn most of their money outside the US. Finally, according to Business Insider, “..it’s not so much that the US economy is irrelevant, but that the sectors most affected by the disruptions – restaurants, movie theaters, parts of retail – do not have much significance to the US equity market or the economy for that matter.” Considering that the aforementioned enterprises — restaurants, hotels, and recreation services — comprise less than 5% of the GDP, they are nudged aside by the big high tech and industrials when it comes to market performance. Yes, the overall performance of the US economy has to be a concern for stock market investors, but our domestic spending is just a small part of the big picture. Investors continue to be optimistic, and they should be. Post Comment Private Reply Ignore Thread
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