Good Question: Does The Rising Market Mean A Rising Economy?
MINNEAPOLIS (WCCO) – It’s been more than five years since we’ve seen the Dow at such high levels, but most of us don’t feel like celebrating.
So does the rising market mean a rising economy?
You’d think a week of record market closes would make us feel like the economy is back.
Not so, according to Steve Lear and Andy Fishman, partners at Affiance Financial in St. Louis Park.
“The stock market is not the economy,” Lear said.
He added: “The economy has a soul. The stock market has no soul. The economy cares of whether you’re working…what interest rates are, what inflation rates are.”
This isn’t to say there’s no connection between the stock market and the economy. Economists talk about the wealth effect.
“When people feel more wealthy, they will spend more money,” Fishman said. “Therefore, more companies are selling goods and services. And, hopefully, they will hire more people and our wages will go up.”
For the stock market to go up we don’t need more hiring, according to Lear.
For the economy to go up, however, hiring is key.
Part of the recent stock market rally is because the Federal Reserve has interest rates close to zero. Investors have nowhere else to go.
When you adjust for inflation in the last five years, the market isn’t much higher than it was in 2008.
The Dow, by the way, is just thirty stocks, and it includes Minnesota’s 3M, General Mills and United Health Group.