The Disconnect Between the Markets & the Economy

U.S. stock markets continue to trend up as optimism returns to Wall Street while Main Street USA continues to struggle. For sure there is plenty of social unrest around the country, geopolitical tensions with China, Russia, and North Korea are increasing and some not-so-great negative economic data continues to be released almost daily – but the major U.S. markets are trading close to all-time highs.

In fact, as of late July 2023, the DJIA and S&P 500 are within earshot of their all-time highs and NASDAQ is not too far behind its peak as well.

The Markets Have Covered a Lot of Ground

If you go back to the fall of 2022, many market pundits were suggesting that maybe fundamental conditions were supportive of a favorable environment for stock markets in 2023. Unemployment was trending down, there seemed to be consensus when the Fed might stop raising rates, corporate earnings were decent and GDP growth was solid at 2.6% in Q4.

Fast forward to the end of the second quarter of 2023 and everything popped – at least as it relates to the stock markets. Through the end of the second quarter:

  • The S&P 500 was up more than 16% YTD and had turned in its best first half since 2019;
  • NASDAQ was up an astonishing 31%+ YTD on its way to its best half since 1983; and
  • The DJIA had turned in a still-decent 3.9% YTD gain.

In other words, the markets covered quite a bit of ground in a very short period of time.

But that’s not the whole picture. And the recent rally begs the question, did the markets move too far and too fast?

The Markets Look Forward, Not Backward

It can be challenging to reconcile why stock markets could conceivably perform well amidst a constant drip of negative economic news. Intuitively, it just doesn’t make sense. But, the apparent disconnect between markets and the economy is actually normal.

This is because the economic data we receive every week is backwards looking. It tells us what happened. The Employment Situation Report, for example, reports the previous week’s unemployment numbers. Most of the other monthly economic data, by comparison, captures what happened in the previous month – with some data reports going back two or three months.

The stock markets, on the other hand, are forward-looking. In other words, the recent rally in the first half of 2023 was more about the markets (i.e., investors) feeling more positive about the future versus uncertain about the present. Whereas the economic data received during this rally was actually showing signs of stress.

How forward does the market look? Well the answer to that depends on who you ask. But generally speaking, the markets look forward at least a couple of quarters, maybe even as much as 18 months.

Does That Mean It’s Over?

Well, we might like to think that we will see nothing but sunny skies and smooth sailing going forward, but that’s not going to happen. Especially when you consider that the recent market rally was really over a very short-term period.

That being said, the recent market rally is encouraging. In fact, often times, strong rallies occur in the beginning stages of a new bull market and maybe we can look back five years from now and recognize that this was the case for our recent rally. Or maybe not.

What Should You Do?

The U.S. stock markets can and do move faster than the U.S. economy, but longer-term, the two are absolutely connected. And while there are reasons to be optimistic, there are also plenty of reasons to worry too. As such, it’s important for investors to manage their expectations appropriately.

In times of market turbulence, having a steadfast partner who understands the peaks and dips is invaluable. At West Advisory Group, we’ve honed our expertise through years of experience, and we’ve included all of our experience and industry knowledge into our signature process: the PEAK FORMula.

Our focus is firmly set on the long-term, recognizing that the financial landscape is marked by its ups and downs. With a deep understanding of these dynamics, our PEAK FORMula is designed to excel in precisely such volatile times. 

We have weathered the fluctuations and emerged stronger, and now, we invite you to explore how our proven approach can safeguard and enhance your financial future.

We want to invite you to schedule a complimentary call with us. During this conversation, we’ll delve into the intricacies of the PEAK FORMula and how it was crafted to navigate the challenges of uncertain markets. Together, we’ll explore how our team can provide tailored solutions to meet your needs, capitalizing on opportunities while ensuring a resilient financial strategy.

In today’s complex financial landscape, ensuring the right balance in your investment portfolio is crucial. Our PEAK FORMula emphasizes long-term growth over short-term trading, and our dedicated team is ready to guide you through the process. 

Your financial journey is unique, and it deserves a partner who understands the nuances. Let us show you how the PEAK FORMula can make a meaningful difference in achieving your financial goals. Don’t hesitate to reach out to us at 412-847-2040 to schedule your complimentary call.

Remember, in times of uncertainty, having a reliable ally can make all the difference. We look forward to the opportunity to assist you in reaching new heights with the PEAK FORMula.