The stock market keeps climbing toward and now reaching record highs, while some of the economic signals around us seem to be telling a very different story. Today, the S&P 500 closed at a record 7,818.93, while the Nasdaq also reached a record high. The Dow gained nearly 0.5%. At the same time, the yield on the 10-year Treasury remained around 5.27%, the 30-year yield was above 5.6%, and oil was still hovering near $100 a barrel. Somehow, the response from investors is Buy stocks and I just don't get it.
The explanation being offered is relatively straightforward. Oil prices have eased. Treasury yields pulled back from recent highs. Investors are expecting strong third-quarter corporate earnings and artificial intelligence continues to fuel enormous optimism about future corporate profits.
I understand the argument. If inflation pressures ease, Treasury yields fall and corporate earnings remain strong, stocks can certainly go higher. Here's where I struggle this isn't necessarily the economy most Americans are experiencing. The stock market isn't the economy. This distinction is becoming increasingly important.
The S&P 500 represents some of the largest and most profitable companies in the world. It does not represent the financial condition of the average American household. A multinational technology company benefiting from billions of dollars in AI investment can have spectacular earnings growth while consumers are simultaneously struggling with housing costs, food prices, insurance premiums, utilities and borrowing costs. Those two things can happen at the same time and I think that's exactly what we're seeing. The market is increasingly rewarding companies based on their expected future earnings, particularly companies connected to AI. Meanwhile, the real economy is dealing with something else entirely.
Look at the bond market.This is where the disconnect becomes even more difficult to ignore. The 30-year Treasury yield recently reached 5.702%, its highest level since 2002, before pulling back to roughly 5.63%. The 10-year yield also reached a 24-year high before easing. These aren't insignificant numbers. Long-term interest rates affect mortgages, corporate borrowing, construction, infrastructure investment and countless other parts of the economy. Yet equity investors appear willing to look past much of that.
I'm short some so I think my rational brain is somewhat bias but still this stock market pisses me off!
Don’t be surprised when the Value of the Stock Market is Divided by 100 once it’s measured in U.S. Stable Coinage…
It is perplexing but I feel like there are 3 main components contributing to it.
No reserve requirements for banks since March 2020 (This is part of why we aren't seeing 2008 style bank failure)
Glow Up from Extra work and Inflation. People are working 60 hours / week and having to burn through all their savings and run up credit lines to survive but that is keeping money flowing
H1B Scammers / Illegal Invaders and AI acceleration. The H1B replacement workers are working for salaries that would have been paid 20 years ago and then those using new AI models are able to do 3X the work they previously could if not more.
4th Bonus....... banks are likely adjusting terms vs being as aggressive with foreclosures like we saw in 2008-2010 so we haven't seen the real estate collapse in commercial or residential nationwide even though a lot of high rises are primarily vacant and there is a huge debt crisis.
It's all a house of cards but it is surprising it hasn't completely imploded yet.
That last sentence honestly explains a lot. It is wild seeing those long-term bond yields so high while the indexes just keep breaking records anyway.
Meanwhile BTC took a big dump back down to the $83K mark. I don't worry too much about stocks since those are just kind of set it and forget it for me. I understand why it would be a big deal to people who regularly trade though. I've been thinking about branching my investments out a bit more to some international companies to help mitigate things if something were to happen to the US economy.
The impact of yesterday's news is still visible in the market, which is why it is continuously falling, be it gold or crypto, both are falling,
Be it stocks or crypto, they follow each other and gold is currently performing differently from them