A majority of respondents to this week’s RBJ Daily Report Snap Poll says the stock market’s recent surge does not necessarily signal an improving economy.
The Dow Jones Industrial Average finished last week at 11,006, closing above 11,000 for the first time since before the May 6 “flash crash.” On Thursday, it closed at 11,094.57. Since August, the blue-chip index has gained more than 10 percent; for the year it is up nearly 6 percent.
A plurality—some 39 percent—of readers says the Dow’s surge to some degree is a sign of a strengthening economy, and 7 percent say it very much signals an economic upturn. But 54 percent say it does not indicate improvement very much or at all.
The Dow remains 21 percent below its record close of 14,164.53 on Oct. 9, 2007, but is up nearly 70 percent from the low of 6,547.05 on March 9, 2009.
Readers are split on the prospects for the U.S. economy, with 41 percent optimistic and 41 percent pessimistic. Seventeen percent described their feelings as neutral.
More than 435 readers participated in this week’s poll, which was conducted Oct. 11 and 12.
Some say the stock market’s surge signals a strengthening economy. Do you agree?
Very much: 7%
Not very much: 31%
Not at all: 23%
How do you personally feel about the prospects for the U.S. economy over the next 12 months?
Very optimistic: 6%
Somewhat optimistic: 35%
Somewhat pessimistic: 27%
Very pessimistic: 14%
Here are some comments from readers:
The stock market is not rational and has nothing to do with the economy. It’s more like gambling with a bunch of drunken sailors on shore leave, but legal.
The market crashed when it became clear that Obama was going to win. The upswing now is related, at least in part, to the increasing hopefulness that the November election will restore some sanity. If the Tea Party et al is not as successful as hoped, I predict the market is heading right back down again. Stay tuned.
—Diane Harris, president, Hypotenuse Enterprises Inc.
The economy is temporarily improving, which has contributed to a surge in the stock market. However, much of the recent surge is in anticipation of sweeping some of the big spenders out of office in the November elections. The concern is the long-run implications of out-of-control national and state government spending, which is putting us on the road to bankruptcy. In order to pay this debt, interest rates will have to increase, which will promote inflation and help the government pay the debt service. However, high interest rates and inflation will be detrimental to the many who are on fixed incomes; especially senior citizens. In summary, the current economic spending policies will not work in the long run.
—John Rynne, president Rynne, Murphy & Associates Inc.
The recent increase in the Dow is because of the markets have already factored in the Republican landslide victories over the Democrats on Nov. 2. The market is expecting the business environment to improve. Combine that with dismal returns on many other investments and stocks are one of the only avenues for decent returns. Gold is doing well, but most investors know they cannot time when to pull out of gold, and the market could change quickly.
Duh! Look around. Can you see the prosperity, can you feel the happiness? Other areas of the country may be turning around, but not good old New York State. Since we’ve lost the bulk of our manufacturing base, we’re the first to get hit by a recession and the last to recover.
The term should be “partial recovery.” For that, I agree. But without jobs, there is no real recovery. Yes, corporations have a lot of money and their stock price reflects that. But if they’re just holding on to it, that doesn’t make a recovery. In fact, it’s a bit scary just thinking about where they will invest that money. Other countries, perhaps? As long as unemployment stays above 6 percent, we do not have a true recovery. At 9.7 percent, we definitely don’t have a recovery. After all, how can you have a “recovered” economy if 10 out of 100 people can’t participate to drive that corporate investment?
I think there are two factors connected. First, the consumer confidence is up, reflected on the paper gain of some. Second, public companies are fatter due to the paper value of their stock. In reality, nothing has changed because we have lost a major section of manufacturing, which will never come back. It is the beginning of a new age that I believe will take years to solidify.
In my opinion, the economy will not recover until unemployment drops drastically and federal spending is reined in. Whatever “surge” in the Dow that is taking place now will be negated by steadily high or rising unemployment.
I encourage everyone to focus on their own house of finances. Save money, avoid consumer debt and continue to invest in the market for your long-term goals.
—Vinny Dallo, financial adviser, New York Life
There’s a huge disconnect between Wall Street bankers playing with everybody’s money and how the real world is forced to live. The index, as was proven by the crash, is all about fake money and means nothing. Nearly every day you can pick up a newspaper and on the front page there’s an article about how much money has been made by banks/traders or raised by politicians just to run for office—and a corresponding article about how many more people are homeless, unemployed or having to live with relatives. We have to remain optimistic, but please—it’s a tough life out there these days for so many of us.
—Richard Stevenson, co-founder and CEO, CobbleSoft International
The stock market “surge” is the result of continued desire to recover the lost fortunes from the last two years. The volatility of the market is related to that desire, with the market overreacting to good and bad news. Good news won!
The recent market correction and subsequent upswing can be attributed to European Union instability after Greece nearly defaulted, combined with all the media talk of a double-dip recession. The central bank intervention to prop up Greece and the euro and the lack of evidence to support a double-dip recession has calmed things down. There is also historical evidence to support the market’s behavior in an off-presidential election year where gains like these are typical. What we are seeing has no real bearing on how the U.S. economy is doing. We continue to face stubbornly high unemployment and very slow economic growth for the foreseeable future. The uncertainty is largely the result of the Democrat takeover of health care (14 percent of the U.S. economy) and our Democrat Congress’ lack of action on tax policy. We clearly have in power a president and Congress who, despite all of their rhetoric, could care less about business in general and job creation in particular. I hope this election day we retire all of them!
—George Thomas, Ogden
With the U.S. government competing to raise money to pay off the national debt, the market and the economy will soon suffer from the stranglehold of too high interest rates. Keep the Bush tax cuts.
—Clifford Jacobson, WebHomeUSA.com
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