Did you notice some very strange stock market results on Friday? Jobs evaporated yet the market soared. The unemployment rate increased from 7.2% to 7.6%. A whopping 664,000 people lost their jobs last month. No good news there. But the market did well. The Dow was up over 200 points. In fact, broad indexes are up 15% to 20% from their November lows.
Is it time to protect your assets or is the stock market telling us that the future for the market is brighter than its recent past? Even though one day does not a market make, the stock market looks ahead while the employment reports looks behind.
What reason would the market have to be so cheery? A few developments have taken root that may in fact help explain.
First, the energy price collapse has had the effect of a huge stimulus for our economy. The same is true about relatively non-existent inflation. Also, the Federal Reserve continues to pump money into the system to counter deflation. Also, even though lots of people lost their jobs, those that held on to their jobs did well. Wages grew 4% compared to a year ago and that’s pretty good for the 92.4% of Americans still working.
So it may be that the market is trying to tell us to ignore the doomsday crowd.
What I find particularly interesting is the recent development in the financial sector. There is hope for a new bank rescue plan and it will likely include a guarantee for the purchase of bad mortgages currently held by banks.
So, lower energy costs, oodles of new money, zero inflation and no tax hikes (cross your fingers) could be just what the doctor ordered and propel our economy to recovery. Of course, nobody knows what will be. I just think its very important to understand that as bad as things may feel sometimes, I think its more important to focus on facts rather than feelings.
As always, I welcome your comments and questions.