As individual consumers, it’s not difficult to discern between times of relative prosperity versus hardship in the “Main Street” economy. The Wall Street economy is a different story altogether, where the high-dollar, MBA-toting traders seem to have a much harder time figuring out the difference than the average Joe & Jane.
According to the most recently released official government statistics, the unemployment rate (5.5%) is at a seven-year low, inflation – at both the consumer and producer levels – has been nearly non-existent in the first quarter of 2015, and wages are on the upswing. Real estate prices continue to rise in many local markets across the country as the Fed continues its zero-interest-rate policy (ZIRP) despite ongoing hints to raise rates amid a backdrop of slow but steady U.S. GDP growth.
It seems simple – when folks are working a 40-hour week, paying the bills, and buying ever-nicer toys at ever-lower prices while cheap credit continues to grease the wheels of the economic machine, life seems pretty good. Throw in the cheapest gasoline prices in the last decade, and the extra weight in our wallets is hard to ignore. But this reality isn’t necessarily reflected in Wall Street trading.
Similar to mid-2013 when the Fed’s signal that the economy no longer needed the QE3 stimulus program led to a major selloff in the bond market dubbed the “taper tantrum”, the stock market has recently turned once again to selling on strong economic data and buying on weak data. “If the economy has to stink to keep interest rates at insanely low levels, so be it” seems to be the Wall Street mantra. Never mind the other side of the coin produced by the Fed’s ZIRP – the punishment endured by retired savers who can’t generate sufficient income from their investments without taking higher risks.
The dramatic drop in crude oil prices since June is also a double-edged sword. While it made our paychecks go farther at the gas pump, many IRA portfolios fell along with oil prices. High yield debt markets and international investments were hit hard by energy sector disruption and the strengthening U.S. dollar; the stock market even took a month-long pause in mid-September 2014 over concern that oil prices had fallen too far too fast.
The lesson here is that there is usually more to the underlying story than appears on the surface, and markets reflect these realities.
Steve Conard is a CERTIFIED FINANCIAL PLANNER™ professional with Compass Financial Services, a registered investment advisor with offices in West Des Moines and Adel. Securities offered through LPL Financial, member FINRA/SIPC. Compass Financial Services is not an affiliate of LPL Financial. Content is for general information only and not intended to provide specific advice or recommendations for any individual.