The New Peak of Dow Jones

[tuckerkao]

We are seeing the new highs for Dow Jones Index almost once per week.

It was around 15,900 in Feb 2016, and increased to over 22,700 a couple days ago.

Has our economic growth really been boosted that much or is it just the bubble effects magnified from the Wall Street stock market?

 

[warpus]

Sorry, that was me, accidentally clicked the wrong thing and ordered a bunch of stuff

 

[Ryika]

It's probably being manipulated by Russian hackers.

 

[onejayhawk]

We are seeing the new highs for Dow Jones Index almost once per week. It was around 15,900 in Feb 2016, and increased to over 22,700 a couple days ago.

Has our economic growth really been boosted that much or is it just the bubble effects magnified from the Wall Street stock market?

I used to be a stockbroker. One thing I learned is that there are a lot more factors in the Market than the economy. Interest rates can drive money into the stock market from the bond market. Current events can drive things up or down. For example, fighting in oil producing regions, earthquakes, scandal, commodity prices, etc.

All that said, there is a relationship between the Dow Industrial Average and the future of the economy, not least because people believe there is one. Buying is a decision and decisions always have both intellectual and emotional elements. The market averages provide both. With most technical data, numbers provide intellectual support. With the markets, money is involved. Excuse the pun, but people are more invested in the changes. Sharp moves have emotional consequences.

So, we are where we are. One of President Obama's legacies is a Little-Engine-that Could economy. It never stalled or stopped, but it also never went fast. For better or worse, the Trump administration wants more juice. They have removed some devices that tend to slow the economy. Interestingly, the word for such devices is governors, just like the top official of each state government. With looser governors, potential that had accumulated during the Obama administration has been released. The problem, potentially, is that the economy can run too fast and break down.

To answer your question, probably some of both. We will have to wait and see.

J

 

[danjuno]

What goes up must come down. Let's just hope it comes down softly.

 

[Ajidica]

We are seeing the new highs for Dow Jones Index almost once per week.

It was around 15,900 in Feb 2016, and increased to over 22,700 a couple days ago.

Has our economic growth really been boosted that much or is it just the bubble effects magnified from the Wall Street stock market?

Dow Jones is a rather primitive, quick and dirty index dating from the 1880's that only measures 30 large, multinational companies. All Dow Jones measures is how well those 30 companies are doing, and it is questionable to draw any clear links between how well 30 large multinationals are doing and how "the economy" is doing for Bob the Citizen. For a whole bunch of very complicated legal, economic, and structural reasons, we are seeing economic policy and economic growth that is skewed toward large, wealthy corporations at the expense of other aspects of the economy.
Using Dow Jones Index as a proxy for the economy is fine when doing back of the envelope calculations, but it isn't used as an economic proxy in any serious setting.

 

[onejayhawk]

What goes up must come down. Let's just hope it comes down softly.

Only if you are referring to objects in a gravity field. Population and growth models may have upper limits, but they do not require retreat from the high.

Dow Jones is a rather primitive, quick and dirty index dating from the 1880's that only measures 30 large, multinational companies. All Dow Jones measures is how well those 30 companies are doing, and it is questionable to draw any clear links between how well 30 large multinationals are doing and how "the economy" is doing for Bob the Citizen. For a whole bunch of very complicated legal, economic, and structural reasons, we are seeing economic policy and economic growth that is skewed toward large, wealthy corporations at the expense of other aspects of the economy.
Using Dow Jones Index as a proxy for the economy is fine when doing back of the envelope calculations, but it isn't used as an economic proxy in any serious setting.

All this is true but it's beside the point. The Dow is important more because it affects people's behavior than for any intrinsic value as an indicator.

J

 

[Zkribbler]

Dow Jones is a rather primitive, quick and dirty index dating from the 1880's that only measures 30 large, multinational companies. All Dow Jones measures is how well those 30 companies are doing, and it is questionable to draw any clear links between how well 30 large multinationals are doing and how "the economy" is doing for Bob the Citizen. For a whole bunch of very complicated legal, economic, and structural reasons, we are seeing economic policy and economic growth that is skewed toward large, wealthy corporations at the expense of other aspects of the economy.
Using Dow Jones Index as a proxy for the economy is fine when doing back of the envelope calculations, but it isn't used as an economic proxy in any serious setting.

Ajidica is wise.

 

[uppi]

The central banks have been pumping money into the financial systems. That money has to go somewhere. Interest rates are still ranging from minimal to negative, so the money goes into safe stocks.

 

[Birdjaguar]

The S&P 500 and total stock market indexes are better proxies, but they are most useful to those who have investments. The ongoing ups and downs of the market have little impact on those who don't. Both of those indexes are also are record highs and have been steadily climbing since 2009. When you look at the major indicators of a coming recession, none of them are indicating such: accelerating inflation; payroll growth; rising unemployment claims; Inverted yield curve; and the index of leading indicators. But in every one of the last 14 mid term election years (dating back to 1962) the stock market has experienced a period of decline. Typically, they last 10 weeks or less from the top to the bottom. If this pattern continues, the best scenario is a decline of less than 10%. A decline of 20% or more would be a major correction that would likely fuel additional growth towards new highs.

Of course, world events can be disruptive screw up lots of things. But for those to happen you need a bunch of crazy people running otherwise stable countries....

 

[Birdjaguar]

The central banks have been pumping money into the financial systems. That money has to go somewhere. Interest rates are still ranging from minimal to negative, so the money goes into safe stocks.

I believe that Janet Yellen has started to unwind that process by adjusting the US balance sheet back towards what it was in 2008 (quantitative tightening). But she will probably be replaced in early 2018 by a Trump appointee who might well be crazy.

 

[Colon]

What goes up must come down. Let's just hope it comes down softly.

Are we arguing it will fall back to 41.22? A 99.8% fall would certainly be a shocker.

All this is true but it's beside the point. The Dow is important more because it affects people's behavior than for any intrinsic value as an indicator.

J

On what are you basing that? The non-impact of the 87 crash or the 2016 Chinese crash? Even the burst of dotcom bubble was followed by a minor recession. Real estate prices have a much bigger impact on the real economy, while bond prices are a much better predictor.

 

[Colon]

For a whole bunch of very complicated legal, economic, and structural reasons, we are seeing economic policy and economic growth that is skewed toward large, wealthy corporations at the expense of other aspects of the economy.

You're picking an awful time to be arguing this. Hourly earning rose by an annualized ~5% over the past 3 months in the US.

 

[Hygro]

I made the same claim as @Ajidica years ago and then @Whomp came in and said "ah, nope" so when I checked on FRED while the stock market is overly dramatic it actually correlates to "The Economy" incredibly tightly.

 

[Hygro]

The central banks have been pumping money into the financial systems. That money has to go somewhere. Interest rates are still ranging from minimal to negative, so the money goes into safe stocks.

Well most of that was in the form of treasuries being swapped (there's your "pumping money into", its an asset swap) with bank reserves and stayed as bank reserves that then would turn around and buy treasuries when available.

 

[Colon]

So, we are where we are. One of President Obama's legacies is a Little-Engine-that Could economy. It never stalled or stopped, but it also never went fast. For better or worse, the Trump administration wants more juice. They have removed some devices that tend to slow the economy. Interestingly, the word for such devices is governors, just like the top official of each state government. With looser governors, potential that had accumulated during the Obama administration has been released. The problem, potentially, is that the economy can run too fast and break down.

To answer your question, probably some of both. We will have to wait and see.

J

There's so much wrong with this. Let me start with this:

There was exactly ONE 0.25% hike during Obama's presidency and 3 during Trump's. These actions anyway had nothing to do with the president in charge because the Fed acts independently. Moreover, Trump has been critical of the monetary stimulus applied by the Fed and may very well appoint a hawk as the next the head of the Fed. Not something we need, because appearances notwithstanding economic conditions are still far from normal.

Here's GDP growth over the past 10 years. Not much difference between Obama and Trump so far.

Wouldn't be likely anyhow that Trump has boosted the economy because economic reforms, like cutting red tape, take years to take effect. It's typically the successor government that benefits from them. (Germany being a case in point)

 

[Ajidica]

I made the same claim as @Ajidica years ago and then @Whomp came in and said "ah, nope" so when I checked on FRED while the stock market is overly dramatic it actually correlates to "The Economy" incredibly tightly.

Dow Jones Index != stock market.

 

[Birdjaguar]

I made the same claim as @Ajidica years ago and then @Whomp came in and said "ah, nope" so when I checked on FRED while the stock market is overly dramatic it actually correlates to "The Economy" incredibly tightly.

When you say "economy" what do you mean?

 

[onejayhawk]

There's so much wrong with this.

There was exactly ONE 0.25% hike during Obama's presidency and 3 during Trump's. These actions anyway had nothing to do with the president in charge because the Fed acts independently. Moreover, Trump has been critical of the monetary stimulus applied by the Fed and may very well appoint a hawk as the next the head of the Fed. Not something we need, because appearances notwithstanding economic conditions are still far from normal. Here's GDP growth over the past 10 years. Not much difference between Obama and Trump so far.

Wouldn't be likely anyhow that Trump has boosted the economy because economic reforms, like cutting red tape, take years to take effect. It's typically the successor government that benefits from them. (Germany being a case in point)

Swinging strike. I particularly like that Trump was not even on the graphic you provided to show there was little difference

It was fun but not on point. It does illustrate the fundamental issue, though. The Dow's impact is more psychological than tangible. The same is often true of politics.

J

 

[Zkribbler]

Here's GDP growth over the past 10 years. Not much difference between Obama and Trump so far.

Trump has not yet screwed up the economy anywhere near as badly as I predicted.

Of course, once he passes his tax giveaway to the rich, expect to see the DJIA go up diddly up and then down diddly down.