Home About Archives RSS Feed

@theMarket: The Economy Versus the Stock Market

By Bill SchmickiBerkshires columnist
It is a tale of two markets. One represented by stocks, which has experienced a "V" shaped recovery, while the other (the economy) appears to be describing a "W." Can the two continue to diverge?
 
The short answer is "yes," as long as the Federal Reserve Bank continues to support the financial markets with unlimited stimulus.  "Stocks are the only game in town," as one investor put it. "Bonds are yielding me less than nothing after inflation, and commodities are just too risky."
 
That sums up the present state of affairs facing investors. 
 
The fact that earnings have been absolutely dismal in the latest quarter meant little to the markets. Earnings forecasts have been reduced to such a low point that the majority of companies have had no problem beating estimates. Some companies, especially in the technology space and stay-at-home stocks, have actually thrived during the pandemic.
 
I wish that could be said for the overall economy, but the coronavirus doesn't care what kind of economic models we fashion. Everyone hoped that by this summer the virus would have done its damage and moved on, but containing the virus has proven much harder than we imagined. 
 
Despite the on-going virus burden, U.S. employers added 1.8 million jobs in July. That was an upside surprise. Average hourly earnings month-over-month were up 0.2 percent (versus -0.5 percent expected), which was good news as well. The service sector led the gains in the non-farm payroll report. 
 
The only downside may be that the stronger than expected employment data may remove some of the urgency for an immediate compromise on a new stimulus package between the two parties. This week, investors had been hoping Congress would give the economy another jolt of stimulus, but so far nothing has materialized. Both Democrats and Republicans say they are getting close, but also add that they are still "trillions of dollars apart" from a compromise on a workable bill. Friday (today) was the self-imposed deadline for a deal, but after a marathon session on Thursday night, the politicians had nothing new to report. I do believe that in the end the two sides will hammer out a deal. It is just too important to the economy for our legislators to fail.
 
In the meantime, President Trump is trying to alleviate some of the suffering this stimulus delay may be causing Americans. He has said that he will try and implement executive orders for payroll tax cuts, assistance with both student loans and evictions, as well as unemployment benefits. An announcement may be forthcoming shortly on this subject.
 
As for the markets, we have reached a point where the S&P 500 Index is positive (up 2.3 percent) for the year. That is no mean accomplishment, given the ongoing burden of the pandemic. We have the Fed to thank for that, as well as the federal government's fiscal stimulus programs. As long as the central bank's monetary policy remains accommodative, we should be in good shape. But that does not mean that stocks can't go down. 
 
One risk to the markets may be the on-going tech war between China and the United States. Readers should read yesterday's column, "Tensions with China may heat up," on the issue. President Trump escalated the pressure on Chinese companies by signing two new executive orders on Thursday. He has prohibited U.S. residents from doing business with the Chinese-owned TikTok and WeChat apps, beginning 45 days from now. On Friday, he added sanctions on Hong Kong leader Carrie Lam and 11 other individuals for implementing "Beijing's policies of suppression of freedom and democratic processes."
 
He worries that these Chinese companies are gathering personal information on Americans that may present a security risk. In addition, an influential group of U.S. regulators said stock exchanges should set new rules that could a trigger a delisting of Chinese companies. The president's Working Group on Financial Markets insisted that Chinese companies must be required to allow access to their audit work papers.
 
So far, we have been dealing with a "Teflon" market where bad news simply rolls off the averages and only good news is discounted.  There is a risk that this tech war could escalate and test that concept. If I were you, I would expect China to retaliate against our actions fairly soon. If investors get spooked, it could cause a short-term decline in the markets.
 

Bill Schmick is now the 'Retired Investor.' After working in the financial services business for more than 40 years, Bill is paring back and focusing exclusively on writing about the financial markets, the needs of retired investors like himself, and how to make your last 30 years of your life your absolute best. You can reach him at billiams1948@gmail.com or leave a message at 413-347-2401.

 

0 Comments
     

Support Local News

We show up at hurricanes, budget meetings, high school games, accidents, fires and community events. We show up at celebrations and tragedies and everything in between. We show up so our readers can learn about pivotal events that affect their communities and their lives.

How important is local news to you? You can support independent, unbiased journalism and help iBerkshires grow for as a little as the cost of a cup of coffee a week.

News Headlines
White Withdraws From Williamstown Select Board Race
Local Environmentalists Demand Cleaner Berkshires Power Plants
Pittsfield Police, Fire Respond to Man Found in Parking Garage
McCann to Install Lights on Football Field
SVMC: Medical Matters Features Hand Surgeon
Public Health and Safety Panels Votes Against Pittsfield Mosquito Spraying
Berkshire County Experiencing Mild Drought Conditions
Lanesborough's Johnson Departs Mount Greylock School Committee
SVHC Thanks Local Businesses
Berkshire Organizations Receive Cultural Council Funding
 
 


Categories:
@theMarket (366)
Independent Investor (450)
Retired Investor (38)
Archives:
April 2021 (4)
April 2020 (5)
March 2021 (8)
February 2021 (8)
January 2021 (5)
December 2020 (6)
November 2020 (8)
October 2020 (7)
September 2020 (6)
August 2020 (6)
July 2020 (10)
June 2020 (7)
May 2020 (9)
Tags:
Banks Deficit Debt Ceiling Commodities Markets Japan Election Currency Rally Energy Federal Reserve Taxes Congress Europe Stock Market Selloff Stocks Stimulus Bailout Oil Retirement Greece Europe Metals Jobs Debt Crisis Euro Recession Wall Street Interest Rates Pullback Housing Fiscal Cliff Economy
Popular Entries:
The Independent Investor: Don't Fight the Fed
@theMarket: QE II Supports the Markets
The Independent Investor: Understanding the Foreclosure Scandal
The Independent Investor: Does Cash Mean Currencies?
@theMarket: Markets Are Going Higher
The Independent Investor: General Motors — Back to the Future
The Independent Investor: How Will Wall Street II Play on Main Street?
@theMarket: Economy Sputters, Stocks Stutter
The Independent Investor: Why Are Interest Rates Rising?
The Independent Investor: Will the Municipal Bond Massacre Continue?
Recent Entries:
@theMarket: Stocks Grind Higher as Bond Yields Retreat
The Retired Investor: Water Becoming a Rare Commodity
@theMarket: Spring Has Sprung in the Markets
The Retired Investor: Will Infrastructure Spending Boost Clean Energy Stocks?
@theMarket: Cross Currents Confuse Investors
The Retired Investor: Cannabis Catalysts Coming Soon
@theMarket: Rising Rates Create Headwinds for Stocks
The Retired Investor: Food Scarcity in a Nation of Obesity
@theMarket: Tech Stocks Rise From the Dead
The Retired Investor: The Coming Economic Boom