Americans are mistaken in equating market upside as a sign of broader good news, and should dismiss it as a meaningful indicator of macroeconomic health.
He says stock markets have a historically poor track record of correctly forecasting the future economy.
So, stocks aren’t a good indicator of future economic health, and should be ignored?
In other, totally coincidental news today:
Q4 gain says recession cannot not be declared until at least July when Q2 2024 numbers are reported.
He doesn’t say they should be ignored, in fact he says they are not ignored. While there is no perfect coorelation, he says stocks have a psychological effect because the common indices are so widely covered - and for a complex subject like economics, it translates it all down to a single definable concept that the average American sort of, kind of, can understand. And therefore it may have a placebo effect in consumer confidence, and that may have an effect on the economy.
It’s a long road, but I’d say it’s not the craziest theory I’ve seen.
Depends on the time frame, and depends on what the market is pricing in. Is the market pricing in a robust economy? Or is the market pricing in a “JC” utopia of court overturned regulations, tax cuts for the “JCs”, and broken unions?
Steve
So, it depends.
The one thing to know about the stock market – it will fluctuate.
https://quoteinvestigator.com/2013/09/28/market-fluctuate/
The earliest evidence located by QI appeared in an anecdote credited to Henry Poor in the pages of the Wall Street Journal in October 1922. Today, Henry Poor is remembered as the founder of the firm which became the powerhouse financial analysis company called Standard & Poor’s. He died in 1905 several years before the article presenting the tale was published.
In this version of the story Poor was inquiring about a set of companies called Standard Oils. There were several Standard Oil companies, e.g., Standard Oil of Ohio and Standard Oil of New Jersey, even before the breakup mandated by anti-trust regulators in 1911. The companies were linked together through a trust structure, and John D. Rockefeller was the most powerful owner and executive of the Standard Oil Trust:
Henry Poor used to tell this story: He walked down to the financial district with John D. Rockefeller one morning and tried to elicit some information as to the market for Standard Oils. The latter passed two blocks before giving an answer and then said slowly, “I think they will fluctuate.”
DB2
Why is that? I seem to recall the general definition of a recession being changed when we had twice had 2 consecutive negative growth between 2020 to 2022. Certainly we should be able to declare a recession on 1 single quarter negative growth if other attributing factors like unemployment increasing?
Some people don’t much care about ‘The Economy’ but do care about their stocks. I would be much more interested in whether ‘The Economy’ is a good predictor of ‘The Stock Market.’
These days when many good names are making all time highs TSLA is down 26.5% YTD. The following is just for stocks I’m tracking. The coloring is just the Fool fooling…
Symbol Date High Down% Company
^GSPC 01-25-2024 4,894.16 0.0 S&P 500 Index
^DJI 01-25-2024 38,049.13 0.0 Dow Jones Industrial Average
V 01-25-2024 272.77 0.0 Visa Inc.
SMCI 01-25-2024 475.58 0.0 Super Micro Computer, Inc.
ROST 01-25-2024 140.81 0.0 Ross Stores, Inc.
NVDA 01-25-2024 616.17 0.0 NVIDIA Corp.
AMD 01-25-2024 180.33 0.0 Advanced Micro Devices, Inc.
PSTG 01-24-2024 41.94 1.5 Pure Storage, Inc.
CRWD 01-24-2024 300.28 2.3 CrowdStrike Holdings, Inc.
CYBR 01-23-2024 237.87 2.7 CyberArk Software Ltd.
MA 01-22-2024 439.70 0.6 MasterCard Inc.
ISRG 01-22-2024 375.81 0.2 Intuitive Surgical, Inc.
January has also been bad for my covered call positions, capital losses gave back all the December premiums. Right now I have no open call positions and I’m waiting to see how TSLA behaves.
Can ‘The Economy’ tell me anything about it? Probably not.
The Captain
PS: The Crash of '29 was not foretold by ‘The Economy’, was it?
It was not – women’s hemlines are a better contrarian indicator.
The History of Hemlines – Women’s History Network (womenshistorynetwork.org)
intercst
FWIW, the S&P 500 index is a component of the monthly Leading Economic Indicator.
DB2
NBER (the entity that declares a recession) does not use any specified quantifiable definition for a recession (the “definition” was not changed in 2020 or 2020).
NBER looks at a dozen or so factors to declare a recession and GDP is just one of them. Laymen use two consecutive quarters of negative GPD but NBER has never used that definition.
Regarding 2020
The NBER’s definition emphasizes that a recession involves a significant decline in economic activity that is spread across the economy and lasts more than a few months. In our interpretation of this definition, we treat the three criteria—depth, diffusion, and duration—as somewhat interchangeable. That is, while each criterion needs to be met individually to some degree, extreme conditions revealed by one criterion may partially offset weaker indications from another. For example, in the case of the February 2020 peak in economic activity, the committee concluded that the subsequent drop in activity had been so great and so widely diffused throughout the economy that, even if it proved to be quite brief, the downturn should be classified as a recession.
…
These include real personal income less transfers, nonfarm payroll employment, employment as measured by the household survey, real personal consumption expenditures, wholesale-retail sales adjusted for price changes, and industrial production. There is no fixed rule about what measures contribute information to the process or how they are weighted in our decisions. In recent decades, the two measures we have put the most weight on are real personal income less transfers and nonfarm payroll employment.
I actually understand that, my point was more that having Q4 growth doesn’t mean that a recession cannot be declared until July after Q2 2024. It was just being a bit sarcastic
Two weeks ago Cathie Woid said we had a “rolling recession” last year. What ever that is. I think we all agree the economy is slowing. Exactly what happens when a recession is declared? It makes the news and decision makers take note. But some organizations may have well defined policies during a recession.
Fuzzy definitions. A new definition every day mostly confuses the issue.
The question is how will it impact the markets?
That’s not apparent to me. The quarterly GDP data are lumpy, but the trend seems to be going up. Inflation is definitely going down, which means interest rates should be headed down. Consumer sentiment is way up.
Right. With the biggest retail Christmas ever, with auto sales the best since 2019, and with consumer sentiment making an almost 20 point bounce upwards in the past two months.
Pass it around. Don’t bogart that optimism 
A rolling recession is when some parts of the economy do well but other parts do poorly. So what’s doing poorly? Real estate, both residential and commercial. And maybe banking. What’s doing well? Practically everything else. Even worker salaries are (now) outpacing inflation, retail is up, travel, leisure, etc. are up, the market is up, even Cathie Woods is up. I don’t know what she’s talking about, but then I suspect neither does she.
IMO, the “recession” rolled her. And she just can NOT recover.
Today’s “Cathie Wood” hype on my feed. (apologies if any one article is duplicate posted. hard to keep things straight in a publicity blitz of this magnitude)
Paul Krugman is a Democratic hack
It’s true that Krugman is usually supportive of Democrats and Democratic policies, but then he is often right, and happily admits when he is wrong - most recently about inflation being transitory (he thought the period would be shorter.)
But that is no reason to ignore him. Larry Kudlow is almost always wrong, but I still read what he has to say, at least when somebody else writes about it. For instance, recently he said:
It’s always good to hear an economist admit when they’re wrong.
You’re welcome.
If the tools for reporting were in place it would have been. The shelves were overstocked. Factory production had gone far beyond demand. Loans were beyond corporate revenues to pay back.
Most importantly automatic stabilizers did not exist for the aftermath.
Retail numbers are trending downward. As Cathie noted companies like P&G report they are reaching the limits of price increases. Unit volumes are in decline. Credit card debt is rising. Defaults are increasing.
Which set of numbers do you want to use?