Stock Market ≠ Economy – Exhibit A
It is often said, by us and others in the investment community, that the stock market does not equal the economy. In other words, the pricing of assets as demonstrated by the equity market does not necessarily reflect the apparent fundamental picture of the economy at a given time. The backdrop of today’s economic data on Retail Sales illustrates this point perfectly.
Via Bloomberg:
Sales at U.S. retailers unexpectedly dropped in June, upending optimism about the strength of the rebound in consumer spending during the second quarter.
Purchases decreased 0.3 percent after a 1 percent advance in May that was smaller than previously reported, Commerce Department figures showed Tuesday in Washington. The median forecast of 82 economists surveyed by Bloomberg called for a 0.3 percent gain. Eight of 13 major retail categories showed declines in demand.
Furthermore, as mentioned in the article, on a year-over-year basis, Core Retail Sales dropped to the slowest rate in 16 months.
And yet…
…the Dow Jones U.S. Retail Index was the first sector to hit a new (all-time) high following the recent pullback in the stock market. The point is, you need to choose your financial decision-making inputs wisely. Equity prices, as inputs, do not lie. They may not tell you where they are going but they tell you where they are. Basing your decisions on economic data can be dangerous. Unless you are trading economic data futures, you can be correct on your economic forecasts and still end up losing a lot of money if equity prices do not follow suit.
So leave the economic forecasts (and inevitable head-scratching) to the economists and just follow prices.
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The commentary included in this blog is provided for informational purposes only. It does not constitute a recommendation to invest in any specific investment product or service. Proper due diligence should be performed before investing in any investment vehicle. There is a risk of loss involved in all investments.
