Tonawanda News

Opinion

November 20, 2012

CONFER: Why stocks are higher than expected

Tonawanda News — A question that people have asked me quite often over the past few years is this: “If the economy is so bad, then why is the stock market so high?”

It’s a legitimate thing to ask. In October of 2007 the Dow reached an all-time high of 14,164. During the Great Recession, the market bottomed out in March of 2009 at 6,547. In the past 52 weeks we’ve seen a peak of 13,661 and, as I write this column, we’re at 12,570. Those aren’t pre-recession levels, but they’re still pretty good considering what the global markets went through.

No one would have expected the Dow to double — let alone surpass just 10,000 — in just a couple of years. It doesn’t match what has really happened in the economy. Most Americans are just as pained and worried as they were during the Recession; such is to be expected when the widely-accepted unemployment rate has languished around the depressing 8 percent mark. That number, which in itself doesn’t reflect reality, is only that small because so many people have dropped out of the workforce or have lowered their expectations to part-time employment. Taking into consideration those individuals through the U6 unemployment rate, true unemployment is really at 14.6 percent.

You can see why people are confused by the inverse relationship between economic indicators.

So, what does account for the stock market’s ascension?

The answer is simple. It’s the only game in town.

It used to be that the working man could plan for his future by dabbling in one or more of the following: investing in the stock market, buying real estate, acquiring government debt, or buying certificates of deposit. Now, only the first one is a legitimate endeavor because the other 3 are just shadows of their former selves.

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