Many Questions...

Many Questions…

Stock prices are derived from corporate earnings, and corporate earnings for S&P 500 companies are projected to finish the year up at least 15%. 2026 will be the fourth straight year of double-digit earnings growth. Markets have risen each year since 2023. So why do we all feel so bad?

The unemployment rate has risen from a low of 3.4% to 4.3%. 4.3% is still historically low, but the trend is alarming. Anecdotally, I know lots of underemployed mid-career professionals looking. College graduates seem to be having a hard time finding entry level positions. But still 94 out of 100 Americans who want to work are working.

The University of Michigan’s index of consumer sentiment have fallen to its lowest level since 1952. Households are feeling worse about their economic state than in the 1970’s when inflation was unhinged. According to the Atlantic, Americans are experiencing and expressing the worst economic pessimism ever recorded.

Inflation has risen 3.8% over the last year and may continue rising as supply chain disruptions of petroleum products affect energy and food costs. Every American feels this at the grocery store and the pump. The Federal Reserve may not be able to cut interest rates if inflation remains persistent.

Artificial Intelligence promises to make our lives easier, and productivity in the US has never been better. Data centers are being built and the need for energy and water are increasing. Building is going to continue for as long as more compute is needed to fuel the latest tech boom.

Stock markets do correct an average of two times every year. This means that prices fall between 10% and 20%. Smart investors ride the waves and stay invested. Much of our collective angst seems to stem from the ongoing war in Iran. An agreement will be reached, and when it does, the markets will most likely have a sharp positive reaction.

We’ve been reading about an ever developing, soon to be announced deal to reopen the Strait of Hormuz. To date, we’ve been about to have a deal any day for about the past two months. The longer the closure, the more damaging to the world economy the supply chain disruptions will become.

The war will be over. We may need to experience higher gas prices, more supply chain disruption, falling equity prices, rising food prices, or some other factor of unpleasantness, but the war will end, and once it does, expect the mood to rise and markets also with the peaceful feelings.