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 unemploymentBut,
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?