How is DOW above 13,000

H

hornpharmd

5,000+ Posts
I know this political. Just have to wonder how the DOW is so high despite high unemployment in US and many European countries. US reports GDP growth of 1.5% in QTR 2 compared to 2% in QTR 1. Consumer spending is down to 1.5% in QTR 2 compared to 2.4% in QTR 1.

I am no business expert but simply question how the stock market can be so high when there is all this bad news in the US and European economy. Has seemed to me that the DOW should be perhaps in the 11's.

Somebody please school me and explain what the F I am missing.
 
The daily performance of equities now corresponds less to earnings and the like, and more to actions (or statements) by central planners such as Bernanke, Federal Reserve members, and European Bureaucrats.

Prior to the market opening Thursday, one of the top officials in Europe stated that the European Central Bank would never allow the Euro to fail. Within minutes, Dow futures shot up over 100 points. Today, expectations and propaganda, point to further Federal Reserve asset purchases.

In other words, the "free market" is no longer allowed to rise and fall on its own. Unelected central planners make the monetary decisions that steer the markets, commodity prices, and bond yields; kind of like the old days in the USSR.
 
A lot of what Mus is saying is right. However we are in earnings season and earnings are good. Another thing I'll point out is we were around 10,000 on Dow after 9/11. We were above 14,000 in '07 prior to crash. We fell to 6,500 or so afterward in March '09. Neither position (6,500 or 14,000) was sustainable. So we quickly bounced up to about 11,000 and have crept up since that time. I personally think the market is overbought but the developments of the market are not surprising, especially given the commentary of Draghi this week.
 
it held steady for about 3 years from 99-01. then the tech bubble burst and it went down to about 8,000. then it went up from 03 to 08 in the housing bubble. then it crashed down to 6,500. since then it has been slowly climbing back up. What bubble is causing this?
 
The fed reserve fix and the same crap that keeps the price of oil up. Someone brought out a new deck of cards. Let's build another house.
 
The stock market is based on earnings. Earnings is simply revenues-expenses. So, you can increase earnings by lowering expenses, even though revenues also decline usually. But if your revenues decline at a slower rate (because of increased efficiencies or perhaps you are working your existing employees more) you can actually increase earnings despite being a smaller firm by market size.

I could make an analogy to the budget debate, which is 100% applicable is- we can balance a budget in theory if you lower expenses, but in the case of govt you end up lowering revenues too. So, it can only be done intelligently with a scalpel, not an ax, and you need to figure out how to also grow the economy at the same time with investment so as to not shrink it. If you don't grow it at the same time- you get Asia in the 90's, a decade of stagflation.
 
I don't get the government analogy, but companies have stipped away alot of excess, and are running lean and trim right now in fear of the uncertainty. Cash is being horded and Long Term investments are being negotiated longer for better deals. Revenues are steady or slight decline but expenses are down, way down from what they were 4-5 years ago.
 
I have done a little searching. So far the theories say we are in either a 'poverty bubble', a 'narrow social media bubble', a 'bond bubble'.

I have also read that major changes have occurred in retirements accounts. With less people receiving pensions these days more of our retirement accounts are invested in 401k's which are increasingly being invested in stocks. This is causing more volume which at times can push the market up.

I agree that market seems to be over bought right now. While one poster says he sees many kids with nice things I see many people in their 20's and 30's not putting anything into a retirement account and having little overall savings. Many have large college loans they are still paying off and can barely buy a house with very little down by time they are 30-35. The fact that some of us own or buy nice things does not mean that we have that money to spare. It just means we buy things we really can't afford b/c we don't know that we can't afford them.
 
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