You may not have noticed it, but there is an enormous gulf between what many Americans are being told is happening in the world around us and how the financial markets are reacting – or, more accurately, not reacting – to it. It’s as if there are two completely different realities going on. Which reality you subscribe to will likely dictate your investment choices, including how you feel about which direction the bond market is headed.
In one reality – and it’s the one that gets the most coverage in the general media – is that the world is basically coming to an end. The most powerful nation on earth is being run for the past two weeks or so – although it seems like a lot longer – by an ignoramus who is moving our country and the entire world headlong into disaster.
Concerned citizens all over the country are taking to the streets to voice their opposition to everything he does, quite often even before he does it. (Where do they get the time, one wonders; perhaps they’re part of the 90+million adults who are not part of the labor force). Holdovers from the previous administration and sitting judges defy his orders, taking it into their own hands to save the rest of us from his reckless moves.
Leaders of foreign countries – both our allies and our enemies – are alarmed by our president.
Even the supposedly more serious media outlets have joined in the condemnation. Case in point: this week’s Bloomberg Businessweek, which features a doctored photo of President Trump proudly holding up a signed document on White House stationary that says “(Insert hastily drafted, legally dubious, economically destabilizing executive order here),” presumably the order to start rolling back the Dodd-Frank Act, an act you would think many of the magazine’s readers support.
Inside, the first three articles are editorials entitled “Trump Vs. The Rule of Law,” “Donald Trump Heads for the War in Syria,” and “The Travel Ban: Unwise, Un-American.” Then it gets into the news, led by an entire special section on how the president’s Mexico policies are doomed to failure.
There’s nothing particularly new here, since this has basically been the magazine’s tone of coverage ever since the election.
Yet, while all this chaos is going on right in front of us, we have this:
• The three major U.S. stock market indexes – the Dow, NASDAQ and S&P 500 – are all at or near all-time highs, having risen by 9.9%, 9.7% and 7.7%, respectively, since Election Day.
• The Federal Reserve has raised interest rates once since then and expects to do so two or three more times this year in anticipation of higher inflation stemming from stronger economic growth and a tighter job market.
• The labor participation rate hit its highest level in more than three years in January, indicating that more people have become motivated to look for work.
• The Conference Board’s consumer confidence index is holding near a 15-year high, up more than 13% since the election. The University of Michigan’s consumer sentiment index shows a similar story, standing near a 13-year high.
• In December, the National Federation of Independent Business reported that its optimism index “rocketed to its highest level since 2004 following a “stratospheric 38-point jump in the number of owners who expect better business conditions.”
That’s quite a divergence of opinion.
So, which of these two realities are we supposed to believe? On the one hand, according to the protestors and obstructionists and the media that cover them breathlessly, things couldn’t be bleaker in America than they are right now. Yet people who work or have money to invest seem to have a completely different view of what’s happening. Are their heads in the sand? What do they know that the others don’t?
It’s certainly one thing for biased “journalists” to report on their version of reality, but what excuse do business and financial writers have? Don’t they read the other parts of their new sites that show things are starting to look brighter? Don’t they talk to their sources in the business world? I’ve always held my fellow financial journalists to a higher standard. Perhaps that estimation has been misplaced.
But then again, what if, perchance, the fear peddlers are correct, and investors and employers and consumers are all wrong? What then?
That would mean that the stock market is grossly overvalued, like September 2007 overvalued, just when the market was about to plunge by nearly 50%. It would also mean that the bond market is about to enter an enormous bull market, perhaps pushing the yield on the 10-year Treasury back to about 1.35%, where it stood just seven months ago.
Which reality do you subscribe to?
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INO.com Contributor - Fed & Interest Rates
Disclosure: This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.