Market Pulse: Stocks rise on good economic news
The economic news continues to be encouraging and investors are taking note, which is one reason stocks are rising.
Consumer confidence hasn’t been this high since 2000 and people are spending both in stores and online. Job growth is strong, although wages are nearly stagnant.
Overseas economies are improving as well. In 2014-15, United States corporate profits coming from the rest of the world fell about 3 percent annually. In 2016-17 they grew 7.5 percent. Note to our leaders: trade is a good thing.
Inflation remains low and should stay low for longer than most thought. Unless you are an income investor, that’s good news. True, corporate profits grow at a slower rate than they would if inflation were higher, but interest rates stay low and that bodes well for price-earnings ratios. On balance, low inflation is a positive for stocks.
No wonder stocks have been rising. We have had a good run and through much of it strategists have been calling for a sell-off or worse, an end to the bull market. It was John Templeton who said bull markets don’t die of old age, they die amid euphoria — think dotcom stocks in 2000. No doubt some tech stocks have soared to levels well beyond those justified by a realistic earnings outlook. Maybe some others as well, but not most.
It’s not all good news. Wealth inequality continues to rise and the rich are getting richer. Stocks have tripled since 2009, good news for those over the age of 50 because about half of that group owns stocks.
Meanwhile, median wealth of those under 35 has dropped by 20 percent. Instead of investing and letting the power of compounding work for them, many are paying off student debt. Past generations didn’t graduate with such high levels of debt.
Younger Americans are also more skeptical about stock ownership. I can see why. In their young lifetimes they have seen two bear markets where stocks were cut in half.
Compare that to 1900 to 1999 where there were only two periods in which stocks were cut in half (although the Great Depression was clearly much worse than all other periods).
The economy is getting stronger, but those who are doing well is uneven. Wealth inequality led to Donald Trump’s election and Bernie Sanders’s popularity. It will be a factor in 2020 as well. When it comes to inequality, there is no easy fix.
David Vomund is an Incline Village-based fee-only money manager. Information is found at http://www.VomundInvestments.com or by calling 775-832-8555. Clients hold the positions mentioned in this article. Past performance does not guarantee future results. Consult your financial advisor before purchasing any security.
Support Local Journalism
Support Local Journalism
Readers around Lake Tahoe, Truckee, and beyond make the Sierra Sun's work possible. Your financial contribution supports our efforts to deliver quality, locally relevant journalism.
Now more than ever, your support is critical to help us keep our community informed about the evolving coronavirus pandemic and the impact it is having locally. Every contribution, however large or small, will make a difference.
Your donation will help us continue to cover COVID-19 and our other vital local news.
Start a dialogue, stay on topic and be civil.
If you don't follow the rules, your comment may be deleted.
User Legend: Moderator Trusted User