Friday, October 23, 2015

Stocks are on the rise

In a column I wrote for The Davis Enterprise, published Nov. 26, 2014, I noted this: "On Friday, the S&P 500 index closed at 2,063.5, an all-time high."

From that date until Aug. 17 of this year, that large stocks' index stayed in a relatively narrow, 155.5 point trading range: from a low of 1,972.74 on Dec. 16, 2014 to a high of 2,128.28 on July 20, 2015. And then the bottom seemed to fall out of the S&P.

In one week in August, the index lost 229.3 points. On Aug. 18 it sold for 2,096.92; on Aug. 25 it was down to 1,867.61. All of the year's gains had been wiped out, and it was worth 90.5% of what it had been when I wrote that Enterprise column.

Much of the worry had little to do with the performance of the U.S. economy or our interest rates. It was a combination of the troubles in Europe and the declining growth rate in China. Events abroad threatened profits for American companies. But since its bottom two months ago, the S&P 500 has incrementally climbed back to where it was last November -- albeit with some big down days thrown in.

As I am writing, the index is selling for 2,065.9, almost exactly what it cost on Nov. 26, 2014. On the one hand, that represents nine months with zero gains. On the other, it is a market which has regained the confidence it had at the end of 2014, and perhaps that suggests it is poised to climb some more the last few months of 2015.

According to an article in USA Today, the optimism in stocks the last several days has largely been fueled by news from Europe and China: 

Thursday’s rally was driven by a surprisingly strong profit report from burger giant McDonald’s and hints from the European Central Bank that more stimulus could be on the way to boost flagging eurozone growth. Those drivers built on prior ones, namely the belief that the Federal Reserve will hold off on interest rate hikes until 2016 and the fact China’s economy did not implode.

An interesting, and I think important question, is how the stock market itself and the economy more generally in 2016 impacts the election hopes of each party. I would think that a strong, or at least stronger economy would serve to benefit the Democratic candidate, as long as she (Hillary Clinton?) embraces Barack Obama's economic platform. Most voters are less likely to throw out the party in power when the economy is in good shape. But no matter how strong the economy is or is not, what counts is perception. If Mrs. Clinton wants to run on the Obama economy, she will need to convince the voters that it is good. And at the same time, the Republican nominee (Donald Trump?) will do everything he can to make voters believe that the economy is in terrible shape, no matter what the stock market or other indicators suggest.

No comments: