How the "Disturbing" Rising Market Shreds Hope

The S&P 500 is up 53 percent and GDP grew at 3.5 percent, but unemployment is sky high and consumers are still rolling over… what gives? Slate’s Daniel Gross suggests that “the notion the stock market is an accurate gauge of the domestic economy’s temperature is outdated.”

The reason? As he sees it the major indices — the Dow, S&P 500, and the NASDAQ — are these days measuring super-sized firms with global economic activity, not the bread-and-butter small businesses that actually make up the US economy. As an example, he points to the fact that recently “66 percent of Coca-Cola’s beverage business came from outside North America.” Coke is like many other US multinationals, its success can make for major market movements even though it’s largely a reflection of booming business overseas… not in the US heartland.

In his view, “the globe’s economic geography has continued to change, with the United States accounting for a smaller chunk of global output and demand each year. For much of the past two years, virtually all growth in economic activity has taken place outside America’s borders.”

Gross is showing a decoupling indeed, of course it’s between the US and emerging markets, but it’s also between the US stock market and the functioning domestic economy. So, if you’re waiting for upward trends in the market to lead to a resurgence in the real economy you may be waiting a very long time.

The whole of Gross’ Slate article on the mystery of the rising stock market is a fascinating read.

The Daily Reckoning