The economy is the big question

The stock market is up approximately 10 percent since the election (S&P 500). Part of the reason for the strong market was optimism over the Republican controlled government and the end of gridlock. However, based on the health care bill that couldn’t even get through the House, that might be a fantasy. 

Without the hope for positive government stimulus, all the stock market eggs are in the economy basket. Fortunately, the economy seems very solid. But it’s been solid for years. To justify the lofty stock market gains we’ve seen, we’re going to need something better. Unfortunately, this still seems like the same old slow growth economy we’ve had since the Financial Crisis. 

The most positive economic news out there doesn’t have to do with money, or goods or services. It’s something much less tangible: Confidence. Both consumer confidence and business confidence are at highs we haven’t seen in more than 12 years. That’s impressive. 

Hopefully, that confidence will translate into more spending, more investment, and more risk-taking. However, so far, that confidence hasn’t trickled down into the economic numbers. The economy has clearly picked up a little bit since the first half of 2016. But we’ve had other short spurts of stronger economic activity in recent years. Over the last 9 months of 2014, our GDP averaged more than 4 percent - but it didn’t last. 

So, the big question is whether American’s newfound confidence is enough to break us out of the economic rut we’ve been in since the Financial Crisis. Confidence can be fleeting. But the stock market is charging ahead like an economic boom is a sure thing. That disconnect between the economy and stock market can be rectified in one of two ways. Either the economy will finally reach a higher level – or stocks are way too high. The best news might be that while the economy hasn’t picked up much, a recession looks very unlikely. So I don’t think there’s another “crisis” coming anytime soon. But the stock market and the economy need to battle this thing out to see which side is right. Only time will tell.