The Atlantic: Why Does the Stock Market Keep Going Up?

This is an underestimated question: Why on Earth Wall Street keeps scoring points no matter the actual ups and downs of the economy?

The Atlantic tries to respond with a host of interesting points, in an article written by Derek Thompson, that we summarize.

Two things have been true so far in 2017: The news cycle keeps spiraling downward, and the stock market keeps going up.

(…) Washington’s legislative machine is even more broken than normal, (…)  President Donald Trump (…) has oscillated between sympathy for white nationalists and recklessness toward North Korea. A series of historic natural disasters have ravaged Houston, Florida, the U.S. Virgin Islands, Puerto Rico, and northern California. Abroad, the U.K. is sleepwalking toward divorce with Europe, a crisis with a Middle East ally is brewing, and a missile flew over Japan.

But what observable effect has this cavalcade of chaos had on the stock market? None, really. The S&P 500 is in the middle of one of the strongest bull runs since World War II. The Dow passed 23,000 this week for the first time ever. “I cannot for the life of me understand why the market keeps going up,” Michael Bloomberg said Tuesday in an interview with CBS News.

So, what’s going on? Here are three theories.

1. It’s simple: Corporations everywhere are making a bunch of money.

(…) The stock market is a collective daily wager on the future performance of the nation’s public companies. And they are, to employ a technical term, making a boatload of money right now. In the first quarter of this year, corporate profits reached an all-time high.

2. A1 chaos doesn’t drive the business cycle.

“The unbelievably low volatility in a time of massive global uncertainty seems mysterious to me,” Nobel Prize–winning economist Richard Thaler recently said. Indeed, when people like Thaler and Bloomberg express astonishment at the resilience of the stock market in the face of political chaos, they’re suggesting that front-page stories—political crises, geopolitical uncertainty, and natural disasters—ought to move markets.

3. There aren’t many obvious signs of bubbles, or causes for imminent corrections.

Unlike the mid-2000s, when GDP growth was buffeted by an unsustainable rise in mortgage debt, this boomlet doesn’t seem to be driven by aberrant debt or ahistorical trade imbalances. Unemployment is low, and so is inflation. The housing market has bounced back, but new home construction is still far below the pre-crisis high. Commercial real-estate borrowing is significantly below its levels during the real-estate bubbles of the mid-1980s and mid-2000s. Furthermore, there doesn’t seem to be much fear that the Fed will panic and suddenly raise rates or sell off assets in a hurried bid to combat inflation.

 Complete article in The Atlantic


Source: The Atlantic / Image: Composition with pictures from Pixabay.

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