The stock market reflects a variety of emotions over time, but no one can say that it suffers from excess pessimism at the moment.
In the face of what might be labeled as conflicting trends, Mr. Market chooses to err on the side of optimism, and by more than a little. The S&P 500 was up 4.4% in April, and has climbed more than 15% over the past year through last month. We’ve all heard that the stock market’s a forward-looking animal. But is the confidence warranted, based on the latest economic numbers?
No one really can say for sure, but we can at least revisit what’s already set in stone. By that measure, one could argue that the jury’s still out on the economic outlook, as per the numbers released for April. As our table below reminds, red ink still plagues the statistical tally, albeit only marginally. Last month, weekly hours of production workers slipped by 0.3% while retail sales contracted by 0.2%. For the past year through April, the big loser was housing starts, which plunged by more than 16%.
If any of this demands caution in one’s view of the future, there’s not much sign of it in the equity market, as defined by the S&P 500. To be sure, gloom and doom hardly dominate the economic reports. Notably, housing starts turned up last month, and growth still dominates overall. Perhaps that’s why the S&P continues to favor optimism this month, with the index up another 2% so far in May, through last night’s close.
For all we know, the stock market’s correct in predicting that the economy will keep bubbling. Of course, it’s possible that equity traders are dead wrong.