WHY IS THE DOW JONES INDUSTRIAL AVERAGE GOING UP WHEN THE ECONOMY IS STILL BAD?
Why is a Dow Jones Industrial Average starting up (gradually), when so most people have been still unemployed, home sales have been still lagging, businesses have been still starting under? Is it only a shopping as well as offered by batch brokers as well as investors which is pushing a market, as well as this has no genuine tie to a genuine manage to buy as well as genuine peoples’ mercantile plight?
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Posted in: dow industrial.
Tagged: Average · economy · going · industrial · Jones · still
Much of the movement is based on future expectations. With the real estate market bottoming out, inventories way down, production beginning to pick up, investors are expecting the end of the recession. Unemployment always lags the end of a recession by a few months (it will probably continue upward through December when holiday hiring kicks in) so those numbers tend to be downplayed by investors when faced with expansion elsewhere.
The stock market is a leading indicator, typically reflecting the outlook for the economy 6 months ahead. Unemployment is a lagging indicator, it always peaks 6-9 months after the market bottoms, and 3-6 months after the recession ends. There actually isn’t a ton of retail investors in the market, July was the 20th straight month mutual fund flows into bond funds exceeded equity funds by a large margin.
The chart in the link below shows the historical trends of the market, employment and the economy:
http://dshort.com/charts/unemployment-SP-Composite-since-1948-large.gif
This link shows mutual fund flows and clearly shows, over the past month equity fund flows are relatively flat, while bond funds have seen almost 10B in inflows.
http://www.ici.org/research/stats/flows/flows_07_29_09
There is a deep disconnect between the stock market and the state of the economy. Don’t fall for the cheap gains in the market. It should go back down.