Why are stocks high with jobs low?

Date posted: April 15, 2013

The stock market has skyrocketed this year to new highs, but the job market still faces challenges. Is the trend in the stock market an example of Wall Street ignoring the problems on Main Street? N.C. State University economist Mike Walden answers.

“No, I don’t think so. … I think Wall Street has been looking at Main Street, and I think Wall Street thinks there’s reason to be optimistic. We had a couple of very dismal years, of course, in the economy in general, but particularly for investors. People may remember the stock market plunged by about 50 percent. Profits were negative. Businesses were going out of business, et cetera.

“We made a lot of progress in turning that around over the last couple of years, and I think that fundamentally is why the stock market has come back. But the stock market, of course, is also known for looking ahead. And I think part of the reason we’ve seen gains, especially this year, is that the stock market – Wall Street – is looking ahead. They’re seeing, for example, better spending, better jobs, better housing market, improved household wealth. And I think that’s telling investors that we’re going to continue to see gains.

“Now I will add one note to this notion that the stock market has set an all-time high. Those numbers that we see every day for the Dow Jones Industrial Average or the S&P average are not – are not – adjusted for inflation. And when economists do make those adjustments, we’re actually not at an all-time high. That all-time high is still set, or was still set, in the early 2000s.”

 

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