Why is the stock market soaring when the economy is gloom and doom?

Question

The housing market is down
Christmas spending is down
Gasoline is above $3 a gallon
Prices on everything is up
Bush is spending a billon dollars a day on a hopeless war
This is the worst economy in 50 years!

Answer 1

The housing market is down, but not affecting the stock market investors long term.
The total numbers are not in on Christmas spending, still a month away.
Gas is ridiculously cheap. Adjusted for inflation.
Bush spending money is great for the economy.
This is absolutely not the worst economy in 50 years, 5% GDP growth last quarter...how is that even bad????

Answer 2

The market is an indicator of what is expected 6 months to 24 months down the road. What this says is the investors are not nearly so gloomy as the media and democrat politicians would have you believe.

Yes, the economy is in for some downturn due to high oil costs and the housing mess. Yet the market apparently feels that those will not big a real big deal. And neither do I.

In the last 2 quarters, Real GDP grew at 3.8 and 3.9% annualized rate. Figure high oil prices might sap .5% of that. The housing bubble burst and sub-prime credit mess will maybe sap another 1% to 1.5%. That still leaves growth at a low 1.8%, but it's still real growth. The market sees that. That's what the correction has all been about.

Oh, and Christmas spending is UP, not down! See the link I posted. On black Friday, ShopperTrac reports sales up 8.3% from last year.

No, the worst economy in the last 50 years was the mid to late 70s. Trust me, I was there. Our economy is positively rosy today compared to those days. Back then we had double digit inflation and no economic growth. Unemployment ranged between 6 to 8% back then, compared to around 4.5 to 5% over the last couple of years. New economic terms were created like stagflation and misery index to describe it.

Furthermore, energy took a much bigger part of our income back then, so high oil prices hurt much more back then they do now. At least we don't have gas shortages with odd/even days or green, yellow and red flags at gas stations. Ask your parents about it.

UPDATE - Government released data on 11/29 showing economy was even hotter than expected last quarter, with real GDP growth coming in a 4.9% annualized rate. That's a full percentage point higher than previously estimated.

Answer 3

Its actually not the worst economy in 50 years. The 70s and 80s were horrid in contrast to this. In fact, 99-01 was far worse than this. The market did well today simply because of a huge Foreign investment into Citigroup came in yesterday and there is rumors from the Fed that another rate reduction is in the future. Besides, the housing sector woes are merely pulling down the financials...there are other areas of the market that are screaming right now. Besides, the market is not designed to mirror the economy. They are two different beasts that play off of each other.
Also, the S&P 500 is up 4.6% over last year...which shows growth, but bear in mind it was somewhere around 12% this summer. So there has been some corrections, but the economy really is a far cry from being horrible...and certainly isn't close to being the worst in 50 years.
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p.s. i am in the same boat with you regarding the Christmas spending. Too many people are making a big stink about Black friday's numbers when in reality the 8.3% increase over last year is not an accurate forecast of the current economies condition.

Answer 4

The market's not exactly soaring, but the US economy is in far better shape than it was in much of the 70's, 80's, and 90's. (I was very young in the 70's but I do remember many years of a lot of economic misery.)

The housing market has been wildly overvalued for some time; most investors saw this coming.
4Q retail isn't as strong as retailers would like but consumers are still buying. Tiffany's and Coach likely won't do as well as Target or TJ Maxx.
Gas is expensive but not wildly so, adjusted for historical inflation.
Core inflation is low to moderate; food and fuel could settle back down in a few months.
Unemployment is quite low; productivity and earnings are high; GDP is growing at a strong clip.
The Iraq and Afganistani wars are a very small portion of both total government expenditures and gross domestic product. Even 100 billion isn't a terribly huge amount in a 15 trillion dollar economy. We'll most likely spend more on Medicaid and Medicare this year.
It's entirely possible to have a bear market when the economy's bad, or a bull market when the economy's poor (like in parts of the 1980's). But I think we're in a bull market correction, with another two years or so of steadily appreciating stock prices.
Bear markets are usually sneaky; wild volatility is usually a mid-market bull correction, followed by a rally.

Answer 5

The weaking dollar is making US goods more attractive in overseas markets.

Core Inflation remains benign, wage inflation even more so.

Industrial companies have had booming profits over the last couple of years sending equipment to exploding overseas economies.

Worldwide poverty & illiteracy rates have declined.

On the war front it is becoming more and more evident that al Queda has lost. While much yet needs to be done, the view from the commanders in the field is that the beginning of the end is approaching. Further, the Iraqi people are turning against the insurgents & trusting the US. They want this to end more than we do.

Corporate profits continue to increase at a measured pace. New technologies on the energy front are nearing the tipping point of being commercially viable.

Answer 6

The stock market is forward looking. Today the market believes that there's now a good chance the Federal Reserve will lower interest rates again in Dec., which would do a lot to help save the economy.

Plus the market was very oversold, we were due for a bounce. tomorrow could be a different day though!

Answer 7

Market is not a direct indicator of the economy. It is an indicator of investor "sentiment". It's what institutional and individual (to a much lesser extent) "think" is going to happen. If you think the economy will get better, in the short term or long term depending on your investing perspective, then you buy or sell stocks accordingly. For the last two days, investors "thought" the economy is going to get better based on all the data at their fingertips. Tomorrow they may think it's going to get worse and thus, there will be more selling of stocks. It's just that simple.

Answer 8

The government and the fed are printing up money like there is no tomorrow. This is needed to pay the excessive government expenditures and interest on debt. All the money the government is paying out has to get invested somewhere regardless of near-term market conditions. Inflation from money printing is a serious risk to any possible profits in the stock market however.

Answer 9

Inflation!

Stocks are companies that are real assets. The stocks are not really going up, the dollar is going down. In fact if you compare what stocks were at last year, take that percentage that it has increase and then look how much the dollar has decreased you will see that your money in the stock market hasnt gone up, but has gone down. For instance...this time last year canadas dollar was 1.15 to our 1$. Now its .98 canadian cents to our 1 dollar. So our stock market has gone up 10% (the dow) in 1 year and our dollar has lost
15%+ of its value.

Answer 10

unemployment rate is below 5%...this is great! you are only looking at the doom and gloom rhetoric much like the y2k end of the world. The economy is fine...your hatred of the current administration is obvious