The
new high in the Dow Jones Industrial Average has me
wondering... "How do you get a job working for the Dow?" After all,
the stock market seems to be the only thing actually "recovering."
Those of us who aren't day traders (do they even exist anymore? I imagine most day traders - at least those who day traded at home for survival - were destroyed in the financial crisis... but who knows?), aren't exactly feeling buoyed by the rising stock market. Sure, it's nice to see our tiny little 401Ks rising again, but it doesn't exactly affect our day-to-day earnings in the way a paycheck does.
But, I refuse to be bummed out by the parts of the economy I can't control (namely the jobless situation and the dire state of consumer confidence). Instead, let's look for that silver lining that must be around here somewhere...
1. The stock market is a leading indicator.
You may have heard this before, but it bears repeating (and explaining). A leading indicator is an indicator that changes before the rest of the economy changes. Think of it as a harbinger of things to come.
The stock market is the most famous of leading indicators - it tends to decline before the rest of the economy declines and rise before the rest of the economy rises. This is most likely because the stock market itself is forward looking. People buy stocks because they think that the particular company they're investing in is about to increase in profitability. If people don't think many companies will profit in the future, the overall stock market will go down. In that sense, the stock market is really a way to look at the way investors feel about the overall economy.
So, if the stock market is really a leading indicator, things are looking like they're about to get better soon!
2. Correlations between stock market bottoms and unemployment
Those of us who aren't day traders (do they even exist anymore? I imagine most day traders - at least those who day traded at home for survival - were destroyed in the financial crisis... but who knows?), aren't exactly feeling buoyed by the rising stock market. Sure, it's nice to see our tiny little 401Ks rising again, but it doesn't exactly affect our day-to-day earnings in the way a paycheck does.
But, I refuse to be bummed out by the parts of the economy I can't control (namely the jobless situation and the dire state of consumer confidence). Instead, let's look for that silver lining that must be around here somewhere...
1. The stock market is a leading indicator.
You may have heard this before, but it bears repeating (and explaining). A leading indicator is an indicator that changes before the rest of the economy changes. Think of it as a harbinger of things to come.
The stock market is the most famous of leading indicators - it tends to decline before the rest of the economy declines and rise before the rest of the economy rises. This is most likely because the stock market itself is forward looking. People buy stocks because they think that the particular company they're investing in is about to increase in profitability. If people don't think many companies will profit in the future, the overall stock market will go down. In that sense, the stock market is really a way to look at the way investors feel about the overall economy.
So, if the stock market is really a leading indicator, things are looking like they're about to get better soon!
2. Correlations between stock market bottoms and unemployment
But, if you want to really blow your mind (and impress your friends at your next cocktail party), look at this chart.
In short, this chart shows that stock prices tend to bottom out about a year before the stock market bottoms. If this bears out, the employment market will start to look better around March of next year. Sure, it's not exactly tomorrow, but at least it means the end is in sight. We'll see if this bears out again, but, if it does, we can expect the economy to really start improving in just a few months.
I think, if we've made it this far, we can make it a few months more. How about you?
