Thursday’s market session was a fairly reasonable facsimile of the previous two days — another new closing high for the year in equities, another long-term (or all-time) high set in gold and silver prices, another intraday high for the year in oil, another decline in the dollar, and another rally in bonds that has the 10-year yield approaching its lowest levels of the year.
You get the picture.
One could say it was also another day where the split between the rise in asset prices (not homes, think precious metals and stocks) and the actual health of the economic recovery became more apparent. However, that isn’t to slight the tangible momentum currently present in equities.
The Dow Jones Industrial Average rose 72 points to 12,763, the Nasdaq gained 3 points to 2873 and the S&P 500 added 5 points to 1360.
While another big day for stocks in Japan and several big earnings announcements created an upbeat atmosphere, it looked initially like a day of retrenchment would be in order after a two-day rally that had pushed stocks to new highs for the year.
Plus, there was the little matter this morning of the government’s initial estimate of GDP, which came in at 1.8% — essentially within estimates, but a bit of a reminder that this particular form of economic recovery has been among the weakest on record.
And why should that have anything to do with stock prices? As the Zero Hedge blog noted Thursday, a recent Gallup Poll found that nearly three-quarters of Americans believe the economy is slowing down, at best — more than half think it’s in recession or depression.
And apparently, this seems to be why President Obama is thought to be in “trouble” in 2012 — it’s the economy, stupid, as we all remember. Or apparently, it’s the economy for people unfortunate enough to not own any stocks. For investors, it means seeing stocks double in two years, despite high unemployment, rising energy prices, and state and municipal governments crumbling under the fiscal weight of it all.
After a 30% move higher in stocks since last September — not to mention a 4% rally since April 18 — the question is, will stocks trend back to economic realities, will the economy eventually catch up with stock valuations, or will they meet in the middle?
Good question — a 4% run does seem a bit much for a 10-day stretch, but it’s nothing we haven’t seen before. Longer term, stocks seem to be increasingly pricey for an economy that has some wondering if it’s getting worse (see Gallup participants and companies like UPS (NYSE:UPS), but a lot of capital gains can be made before that chicken comes home to roost.
