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Stock Market Euphoria Vs. The Underlying Economic Data

It's time I wrote an article about the current bubble known as the stock market.

The DOW and S&P are breaking new records yet the underlying data doesn't support such valuation in the markets. What does the underlying data really say about the economy and what effect might this have on stock markets moving forward?

The Treasury just came out with their monthly and quarterly economic statistics and data as shown in the following two tables. A synopsis shows a rising trade balance for goods and services and a decline in industrial production since 2010, a decrease in Real GDP since 2010 and a declining personal savings rate. None of the first three, trade imbalance, decline in production, and decrease in GDP are good for the economy. But savers may indeed be pulling money out to invest in stocks in search of a better return as interest rates have fallen considerably due to Federal Reserve interference in trying to maintain price stability and reduce unemployment.

USEconomicDataMonthly

 

USEconomicStatisticsQuarterly

It is this move from savings to stocks that has possibly contributed to a higher stock market. But the economic data doesn't support it. This, by definition, is a bubble.

bubblesandlowinterestrates

While investors in general shouldn't fight the trend, one can take profit. No one goes broke taking profit but it's an Illusion of Wealth otherwise.  

Continued at http://bit.ly/10JkDNz 

 



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