Insights + Resources

Whats Driving Current Market Behavior?

Jul 15, 2020

Want to know what economic conditions look like 6-9 months from now? Current stock market behavior may tell us.

In the era of COVID-19, and the financial woes it has created, I often get asked, “Why is the stock market holding up so well when the economy appears to be struggling?”

To understand why the markets react — or don’t — to certain outside factors, it’s always good to keep in mind that the stock market is not the economy. I can’t stress this enough. We touched on this week’s volatility in yesterday’s market update.

The stock market is considered a “lead economic indicator,” meaning it’s anticipating what economic conditions will look like 6-9 months into the future. While it can sometimes be a tricky concept to grasp, remember that the stock market’s price today reflects potential future economic activity. 1

Another “lead economic indicator” is building permits. When there is an increase in building permits, it lets us know that developers are bullish about future home sales prospects. If building permits are down, it tells investors that builders may be concerned about interest rates and consumer confidence.2

Although helpful in general, lead indicators should never be seen as infallible. Abrupt and unexpected changes will prompt lead indicators to rapidly recalibrate their expectations for the future. Look no further than when COVID-19 grabbed the headlines in early March, which ended the stock market’s 11-year bull market.3,4

Keep in mind that in addition to lead indicators, there are lag indicators and coincident (real-time) indicators. We take all three types of indicators into account to help provide context for what can often seem counterintuitive behavior, especially in the face of intense global disruption.

For more reading on economic indicators, feel free to check out an earlier blog post on market behavior.

Let me know if you’d like to chat about market behavior, economy or any other topics you’re pondering. A dedicated professional at Epic Capital is here to help.

Tags: , , ,

More Insights

A 6.1% Bump in Social Security?
Jul 22, 2021

The news keeps getting better for Social Security recipients. It’s now projected that benefits will increase 6.1% in 2022, up from the 4.7% forecast just two months ago. That would be the most significant increase since 1983.1,2

Coping with an Inheritance
Jul 21, 2021

Inheriting wealth can be a burden and a blessing. Even if you have an inclination that a family member may remember you in their last will and testament, there are many facets to the process of inheritance that you may not have considered. Here are some things you may want to keep in mind if … Continue reading “Coping with an Inheritance”

Billionaires and Space Travel
Jul 19, 2021

It’s long been an aspirational target for entrepreneurs. It literally goes beyond “blue sky,” in terms of location, to a place no business has gone before: Outer Space! The name of the game is commercial space travel.

The Quiet Fall in Bond Yields
Jul 16, 2021

With all the attention given to inflation, stock prices, and job reports, it’s been easy to overlook the remarkable move in the bond market during the past few months as bond yields have fallen. The yield on the 10-year treasury closed at 1.37% on Friday, July 9, down from its 2021 high of 1.74% in … Continue reading “The Quiet Fall in Bond Yields”

Oil Prices Hit Six-Year High
Jul 14, 2021

On July 6, oil prices reached a six-year high of $76.98 a barrel. This benchmark came as the Organization of the Petroleum Exporting Countries (OPEC) and allies failed to reach an agreement regarding an increase in production.1 This rise in cost follows a year in which OPEC and allies cut production amidst the COVID-19 pandemic. … Continue reading “Oil Prices Hit Six-Year High”

Insights + Resources >