The stock market index was trading at 2, by mid-afternoon. According to polling from Gallup, most Americans will tell you that the U. And this negativity has been with us ever since the financial crisis. Since that time, however, most economic indicators that describe the economic experience of the average American have improved. The unemployment rate has fallen to an historically low 4. Despite the successful efforts of those with political axes to grind to distract from this fact, the fortunes of Wall Street and Main Street are closely intertwined.
And if you take a look at the economic growth we have seen since the end of the financial crisis, that investor optimism appears justified. Over the past thirty years, economic growth per capita has averaged 1.
In the first quarter of , year-over-year annualized per capita growth was 1. That means that it takes less in profits today to justify a higher stock price than it did in years past. One reason for this is that central banks around the world have been buying up safe government debt in an effort to increase economic growth and inflation, leaving fewer of these assets for private investors to buy.
This is one of the data points folks who argue that the stock market is becoming unmoored from economic fundamentals point to.
Corporate profit margins hit all time highs after the recession as employers had leveraged a weak economy to push down wages.
The fact that profits are falling at the same time that wage growth is accelerating is likely being taken as a sign by investors that the economy is rebalancing itself, with workers set to take a bigger share of the economic pie in quarters, rather than evidence of an economy about to slow.
And in the long run, this would be great for the U. Economists across the political spectrum see this dynamic as a potentially serious threat to future economic growth, and one that could be holding back consumer spending and higher corporate profits today. The drunks can wander apart from each other in the short run, but in the long run they can never get too far apart.
And while the stock market may be still be a bit ahead of its drinking buddy, the economy seems less far behind the last time we crossed into new high territory.
By Chris Matthews July 11, The stock market is flying high again.More...