Why Isn’t The Stock Market Tanking Right Now?

by Neal Frankle, CFP ®

With high unemployment, a budget crises and sky-high debt you’d think that the stock market would be tanking big time. But it hasn’t. In fact, the market has been refreshingly resilient lately. What’s behind the recent strength? Here’s my take.

Jobs

February was mostly good for people looking for work. Employers did hire more people than expected last month even though lots of people left the workforce. Unemployment dropped to a 4-year low of 7.7% while economists expected a dip to 7.8%.So the performance was better than expected. 170,000 people found work in February. But 130,000 gave up looking. While that sounds bad, it’s really not so terrible. More people are “aging out” of the workforce. We all have to retire someday…right?

Our labor participation rate is 63.5% which as low as it’s been since 1981. And because our population is getting older, this trend of fewer and fewer people participating in the workforce is likely to continue. But because retirees often spend as much money (if not more) than they did while they were working, this may not be such a dark cloud for our economy.

The 10-year T-note edged up a little – to 2.05%. (Isn’t it amazing that all you can get for a 10-year T-note is that paltry amount?) The rate is low indeed but moving up slightly. This may be a response to an economy that is finding its legs.

The Sequester

The Federal government began cutting spending on March 1st. That means 750,000 government jobs will be lost this year according to the Congressional Budget Office*. But viewed in the context of a rising stock market, investors don’t seem worried about a smaller governmental footprint on the economy.

Other Sectors that are Strengthening

The housing recovery is absolutely adding jobs. Construction employment increased by 48,000. And that’s not the only bright spot. Manufacturers brought in 14,000 new jobs. Health care hired 39,100 people. Professional services added 26,800. Leisure and retailers also finished the month with healthy gains in employment.
Wages rose 2% in the last 12 months and that’s a nice gain compared to the prior several years.

Bottom Linestock market tanking

You want to own investments that are profitable and making money. As a whole, many publicly traded corporations are doing that right now. And that translates into more work and higher wages for employees. These are all good things and that is what is being reflected in the market currently.

Clear Skies Ahead?

Of course the situation could change quickly which is why I encourage you to monitor your accounts and make adjustments as required.

How do you read the current situation? Are you making any changes to your portfolio? Why or why not?

PS – If you know someone who is puzzled by the current market situation and you think this post might be of service to them, please feel free to share the link to this post.

*CBO

 

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{ 3 comments… read them below or add one }

IRA vs 401k Central March 24, 2013 at 3:53 PM

It’s a very strange paradox out there with the Dow Jones at its highest ever, manufacturing starting to pickup again, and yet the jobless rate is still higher than it usually is. Once the Federal Reserve is out of magic tricks, it makes me wonder if all this progress will really have just been artificial or if it will really stick for a few more years.

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Jose March 23, 2013 at 2:33 PM

One thing that I believe is currently bolstering the markets is the ridiculous rate of interest being paid by the banks on savings and money market accounts. Less than 1/2% in many cases. I’m sure that at the first sign of glimmer in the market money has come pouring out of those accounts to ride the bull. To late in my opinion, they should have been investing over the last two years. I found some data to support this on the St Louis Feds website. From the data on their personal savings chart, personal savings went from 800B to less than 300B from Dec 2012 to Jan 2013! I wonder what is going to happen when and if interest rats go back up>

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Kurt @ Money Counselor March 21, 2013 at 8:44 AM

Why isn’t the stock market tanking right ow? I wonder if it could be because 1) QE is artificially supporting asset prices, and 2) some “retail investors” burned by two stock price crashes since 2000 have yet to once again succumb to their greed instinct and jump back in the pool. What do you think?

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