Why stocks keep going up even as the economy softens

[Yo_Mama_Been_Loggin]

Unemployment is going up, with worker pessimism at its highest in years. Inflation is creeping higher. The U.S. deficit is climbing. Consumer sentiment is down. And many key issues facing the economy - such as the fate of President Donald Trump’s tariffs, and interest rate decisions by the Federal Reserve - are still up in the air.

Despite it all, the U.S. stock market has continued its climb. On Friday, the S&P 500 index closed up more than 12 percent on the year. It sits just shy of a record, having bounced back from the sharp April sell-off when Trump first announced severe tariffs, which were then partially rolled back.

The market’s success has progressed even as other economic fundamentals have softened.

“The stock market is filtering the economic data, and it sees good things going forward,” said Claudia Sahm, chief economist for New Century Advisors. “Households are seeing that same reality and coming down pretty pessimistic.”

https://finance.yahoo.com/news/why-stocks-keep-going-even-230812710.html

Meaning with more unemployed it'll keep wages down?

[no_hypocrisy]

1. IOW, the Stock Market is delusional based on the whims of

the brokers, the purchasers of stock, and the media promoting a sunny day when it's raining.

[roamer65]

2. Same happened in 1929.

[maxrandb]

6. Yep, here's more detail

the stock market was significantly up before the Great Depression, experiencing a long boom during the "Roaring Twenties" that saw stock prices reach record highs, culminating in a peak just before the crash in October 1929. This period of unprecedented growth, fueled by widespread speculation and buying stocks "on margin" (using borrowed money), created a speculative bubble that ultimately burst, triggering the 1929 stock market crash that helped set the stage for the Great Depression.

The Roaring Twenties and the Stock Market Boom

Rapid Expansion:

The 1920s were a decade of significant economic growth in the U.S., with the stock market expanding rapidly.

Record Highs:

The Dow Jones Industrial Average increased dramatically, with stock prices reaching unprecedented levels by 1929.

Speculative Frenzy:

Many people became convinced that stock prices would continue to rise indefinitely, leading to increased investment, often using borrowed money (buying on margin).

Permanently High Plateau:

The optimism was so high that some, like economist Irving Fisher, declared that stock prices had reached a "permanently high plateau".

Bubble Bursts:

This speculative bubble burst in October 1929, leading to a massive market crash.

Widespread Losses:

The crash resulted in billions of dollars in losses, ruining many investors who had bought on margin and could no longer repay their loans.

Economic Impact:

The stock market crash was a major blow to the economy, causing consumer panic and a sharp decline in purchasing and consumption, which contributed to the deepening economic crisis of the Great Depression.

[roamer65]

9. Even in early to mid 1929, the economy was weakening.

Economic reality hit Wall Street in October and early November. By late 1930, it was obvious after the Smoot-Hawley Tariff Act and rising bank failures, it wasn’t going to be a “garden variety” recession. The Federal Reserve was also too late to the game in its continuance of restrictive monetary policy.

Once deflation kicked in, real interest rates were high. Real interest rates are calculated by the bank lending rate plus or minus the deflation or inflation rate.

[KentuckyWoman]

3. Wall Street vs Main Street

The Democratic Party has been fighting for Main Street all my life.
The Republican Party has been fighting for Wall Street all my life.

The media will have us all believe that what is good for Wall Street is good for everyone. It gave us trickle down. For 50+ years, we've been trickling down. It is about to stop trickling and we'll get pushed down hard. The robber barons have a lot of friends in the federal government.

[markodochartaigh]

4. And companies channeling profits into stock buybacks

instead of developing their productive capacity also increases stock prices. Fewer shares of a company mean that the shares are worth more if other variables stay the same. And the c-suite cares about stock valuation because much of their compensation is in the form of stock. And, of course, those who are paid in stock have various maneuvers to decrease or avoid taxation, unlike workers who are paid in dollars.

[dutch777]

5. As prices rise and unemployment increases, folks will buy less/differently. Business bottom lines will suffer. It....

...takes time to work thru and hit stock valuations but sooner or later the proverbial chickens come home. I saw an interesting analysis that the majority of retail investors currently active have never been hit by a major market rout so think the market must be bullet proof. And retail investors are the one keeping the market buoyant. Warren Buffet has more $$$ in cash as a percentage of his holdings than at any time in his investing history. That, in its totality, says a lot to me. FOMO can really bite you in the a^^ if you have a shorter time horizon for your investments. If you can lose a bunch and wait for ten years to get back to today's levels and then start to grow positive again, this market may be just fine for you. If not, you have been warned.

[doc03]

7. When the bubble burst the rich will pick up stocks for peanuts. When we hear the

middle class is coming back in the market the crash is near.

[unblock]

8. the stock market is not about the economy. the stock market is about profits for big public companies.

generally, "the economy" if a major factor in corporate profits, but the two are not the same and sometimes diverge.

one of the more obvious and routine ways is in regard to fed policy. corporate profits generally go up when interest rates go down. their interest expense on borrowing goes down; and if they have no debt, it's easier to consider loading up on debt to expand or buy other companies.

this is why bad news for the economy is often met with a stock market jump -- because they figure the fed is more likely to cut interest rates, and the thinking is that the lower interest rates will help corporate profits more than the bad new for the economy.


when there's a pro-big business government in office, it's also easier for big businesses to buy smaller businesses as a republican government is hardly likely to throw any anti-trust resistance in their way (well, nothing they can't buy their way out of with a donation to donnie...). so if things get bad enough that *small* businesses (sometimes private, or not a large part of the whole stock market), the big public companies benefit by being able to scoop them up or scavenge for parts.

consolidation generally is another example of something that is usually bad for the economy but good for corporate profits.

and, of course, government corruption is also good for corporate profits but bad for the economy.

[Strelnikov_]

10. Krugman

From recent substack explaining Keynes

So if the conventional wisdom is that economic conditions will remain more or less normal despite highly abnormal policy, markets will remain calm until the illusion of normality becomes unsustainable. At that point market prices may “change violently.”