As states cautiously begin the process of relaxing their COVID-19 restrictions, some are wondering, “Why is the stock market doing so well when the economy is doing so poorly?” Ever heard of economic indicators?
It’s a great question, and fortunately, one that’s been answered before. To find the answer, we’ll need to dust off those economic textbooks of yesteryear and turn to the chapter on “lead, lag, and coincident indicators.”
“Lead indicators” are factors that are used to anticipate what may happen 6-9 months in the future. Think of the stock market as the foremost lead indicator. Now, imagine that the stock prices today are anticipating where the economy will be in 6-9 months. Is it correct? Despite what some may claim, no one knows for sure.
Alternatively, “coincident indicators” attempt to show the state of the economy right now. For example, gasoline deliveries are currently trending higher, consumer confidence appears to have stabilized, and airlines are seeing more bookings. Even the supply of toilet paper seems less of a concern these days, with Google searches for TP falling to near-normal levels.1,2 This may hint at higher consumer confidence at present.
Finally, “lag indicators” provide insight into past economic data. They may confirm long-term trends, but they are not very good at forecasting. The consumer price index is a historically classic example of a lag indicator. It tells us what inflation was, but doesn’t provide much insight about the future.
In general, when trying to evaluate why the markets are behaving a certain way, it may be best to gather as much data as possible. Economic indicators can help provide context for what can often seem counterintuitive behavior, especially in the face of intense global disruption.
Let a team member at Epic Capital know if you’d like to chat about the economy or any other topics you’re pondering. We are here to help.
Recently, you may have seen reports that a record-low number of homes are available for sale—roughly 1.03 million nationwide. If you compare that to the average number of homes for sale during the past 10 years, it’s no surprise that many hopeful homebuyers are having issues securing a home. But why exactly is the housing … Continue reading “Forces Driving the Housing Market”
It can be exhausting trying to keep up with the whims of Wall Street. Lately, the financial markets have been fixated on federal taxes and what may be proposed on Capitol Hill in the weeks and months ahead. Wall Street’s focus on taxes closely follows its attention on the 10-year Treasury yield. And it wasn’t … Continue reading “The Whims of Wall Street”
President Joe Biden introduced the much-anticipated American Jobs Plan, which outlines an approach to spend roughly $2.2 trillion on the nation’s infrastructure and other projects. As part of the legislative process, the Biden administration also laid out a proposal for paying for the domestic investment. The plan includes raising the corporate tax rate to 28% … Continue reading “Paying for the Infrastructure Bill”
Financially, many of us associate the spring with taxes – but we should also associate December with important IRA deadlines. This year, like 2020, will see a few changes and distinctions. December 31, 2021, is the deadline to take your Required Minimum Distribution (RMD) from certain individual retirement accounts.
There’s an old Wall Street maxim that says, “markets climb a wall of worry.” And these days, there’s plenty to worry about with the trend in long-term interest rates and bonds.
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