I think the thinking is that worse job numbers (than expected) mean increased chances that the Fed won’t raise interest rates after all.
milo
1849
Stocks are forward looking. Fewer jobs added could mean the economy isn’t yet overheating and there’s more room for future growth.
CraigM
1850
Higher unemployment means lower wage growth. Lower wage growth means more wealth extraction at the top. More wealth extraction means more dividends.
So good wage growth always seems to cause market drops. Worse unemployment results often mean better earnings so higher stocks.
Basically if it is bad for your average working class person, it’s good for the stock market.
^^^^^
All of those things. Good for my 401k and IRA (but I’m overexposed–gotta reduce that before we have YA “panic” because the financial sector couldn’t leave Glass-Steagall well enough alone).
KevinC
1852
The way the stock market is covered, I think it leads people to think that it’s related to the US economy. It sort of is but it’s tangential. The stock market is just people (and algorithms!) betting billions of dollars on how they think other people and algorithms betting their own billions will move in a given period of time. GME was an absurd but clear demonstration of that sort of thing. Their stock price didn’t soar, plummet, and soar again due to any underlying fundamentals of their business. The stock market these days is the same, just less meme-y.
KevinC
1854
Guess that’s what happens with the inequality gap growing over the past several decades. The rich have to do something with their ever-increasing share of the pie, I suppose. :)
Good chart, scary indeed.
What they call “irrational exuberance”?
That’s got to be the effect of the index funds’ popularity, surely, as described in that Atlantic article upthread. One of the people in that article (who was one of the guys featured in The Big Short) thought the index funds are creating a big bubble. This chart seems to back up that claim I think.
KevinC
1858
Yeah, you always hear how super “safe” index fund investments are. Just put your money in index funds and watch it grow, you don’t have to do anything or know anything! Not that there isn’t some truth to that, but I could see a bubble happening.
Menzo
1859
I’m not sure an expert would describe an index fund as “safe.” They are less volatile, but if the market crashes then by definition your index fund will crash as well. But so will nearly every other investment except ones that are designed to be contrary to what the market is doing.
Just a couple examples of experts specifically not saying index funds are “safe.”
https://money.usnews.com/investing/funds/articles/2018-04-03/5-myths-everyone-should-know-about-index-funds
Index funds are safe. Index funds generally tend to be less volatile than most individual stocks, says Robert R. Johnson, president and CEO of The American College of Financial Services in Bryn Mawr, Pennsylvania. But they are only as stable as the underlying index. It can be “plain vanilla” like the S&P 500 index or MSCI EAFE index or it can be a leveraged index ETF that amplifies the return or loss by a factor of 3, says Lewis: “The more exotic the index, the more the investor needs to put it under the microscope.”
Index Funds May Be a Better Choice for New Investors.
For all intents and purposes, an index fund is no more safe or unsafe than the underlying investments that it holds. If you put 100% of your net worth in an index fund specializing in junk bonds, you are not diversified, since you just own different securities within the same asset class.
KevinC
1860
Oh, I’m not talking about experts, I’m talking about the public’s understanding/perception of them. Agree that most experts wouldn’t be describing them in that way.
Menzo
1861
Yeah, ok, that’s fair. I imagine that is the impression from layfolk who haven’t done that much research.
However, in general, I’d rather someone think that an index fund is safe and stash their retirement money there than under their mattress, in dogecoin, or shares of GameStop.
I mean a chart showing growth like the one above doesn’t necessarily mean it’s a bubble. The stock market won’t always go up, but if it goes down it won’t mean index funds aren’t a good place to invest your money.
KevinC
1862
Agree with everything you just wrote. Well said!
If you index a graph that has inflation to 50 years ago everything is going to look like that. What you need to do is look at something like percent change year over year and look at the trend there. A huge positive spike without a corresponding negative spike or a long period of positive vs nothing similar in your GDP would be signs of a huge disconnect. But we don’t really have that. Apologies that I’m using a different stock market index here, FRED only has ten years of DJIA and SP500 for some reason.
Edit: and the takeaway from this graph isn’t “wow, look at that” but rather, “huh, so nothing is really different”
Lantz
1864
The % of domestic vs foreign funds invested in the US stock markets has increased substantially so I don’t see why you’d expect it to track as closely now as before.
Menzo
1865
I’m in general not sure why it’s expected that a stock market index would mirror the growth of the GDP anyway. If a whole swath of the population started putting their money into index funds instead of stashing it under their mattresses (or spending it), of course the index funds would go up a lot, but that doesn’t mean it’s a bubble, and it wouldn’t correspond to equal growth in the GDP.
In fact, wouldn’t higher savings rates correspond to lower GDP as people spend less of their income?
Taibbi’s back doing what he does best, write about Wall St financial scams - looking forward to the “Racket of the Week” updates:
Yeah and an index should change companies regularly based on whatever criteria so you can’t really do apples to apples over time either.
