{"id":3061,"date":"2025-09-11T17:09:59","date_gmt":"2025-09-11T17:09:59","guid":{"rendered":"https:\/\/trusteconomics.eu\/?p=3061"},"modified":"2025-09-11T17:09:59","modified_gmt":"2025-09-11T17:09:59","slug":"why-are-us-stocks-living-in-an-alternate-reality","status":"publish","type":"post","link":"https:\/\/trusteconomics.eu\/index.php\/2025\/09\/11\/why-are-us-stocks-living-in-an-alternate-reality\/","title":{"rendered":"Why are US stocks living in an alternate reality?"},"content":{"rendered":"\r\n\r\nStocks seem to be moving in an alternate reality: while indices are hitting historic highs and the market is in a bullish recovery, the underlying economic fundamentals and the real economy don\u2019t seem to fully support this.\r\n\r\n \r\n\r\nSo what are the forces and factors that explain this \u201cunexplained\u201d rise?<\/strong>\r\n\r\n \r\n\r\nFrom monetary policy easing to investor sentiment to tech waves, the market seems to be moving at a pace that often seems independent of the real economy.\r\n\r\n \r\n\r\nIn particular, counting all the workers in a country the size of the United States is not easy. However, the latest revision to nonfarm payrolls, which showed that they were initially overstated by 910,000 in the 12 months to March, does not boost confidence.\r\n\r\n \r\n\r\nIt was the largest change in history and at the lower end of estimates. Still, it’s not terribly surprising, and the history of revisions shows that inaccuracy is nothing new. Of course, this does not bode well for the US economy.\r\n\r\n \r\n\r\nSo how is it that stocks celebrated this news by hitting a new all-time high?<\/strong>\r\n\r\n \r\n\r\nFrom a low five months ago, a week after the \u201cTrump’s Liberation Day\u201d tariffs were announced, the S&P 500 is up 31%.\r\n\r\n \r\n\r\nThis is highly unusual; since 2005, only the recoveries following the Global Financial Crisis and Covid have seen larger five-month increases. What is even more surprising is that this recovery occurred despite the fact that the April 2 tariffs were maintained.\r\n\r\n \r\n\r\nIf it made sense to sell then, the worsening economy should provide even more reason to do so now. This bizarre rise already deserves a place in the books. But there are some explanations.\r\n\r\n \r\n\r\nBonds<\/strong>\r\n\r\n \r\n\r\nFalling bond yields, which lowers the cost of money and widens the multiples that can be justified for stocks, are clearly a factor \u2014 but it\u2019s notable that even after they fell in reaction to the latest jobs data, 10-year yields remain higher than they were when stocks began their rally after \u201cTrump\u2019s Emancipation Day.\u201d\r\n\r\n \r\n\r\nLower yields are clearly good news for stocks only if the economy is doing well. Despite the shocking revision in jobs data, there are signs that this is the case.\r\n\r\n \r\n\r\nOne piece of data supporting stock advocates is the latest survey of small businesses from the National Federation of Independent Business, which found a significant decline in both complaints about higher prices and difficulties finding staff. That sounds like a drop in inflationary pressures.\r\n\r\n \r\n\r\nMeanwhile, consumer inflation expectations remain relatively stable. The latest New York Federal Reserve survey of consumers shows long-term expectations unchanged at 3%, the upper limit of the Fed\u2019s target. Annual expectations rose slightly, but the overall picture remains healthy.\r\n\r\n \r\n\r\nWhile July\u2019s inflation data showed a rise in prices for goods directly affected by tariffs, there is a strong argument that they remain stable enough to allow the Fed to cut rates more aggressively.\r\n\r\n \r\n\r\nJuly\u2019s increase in the personal consumption expenditure (PCE) index, which excludes outliers, was the lowest since 2020. The trend in prices remains significantly higher than before the pandemic.\r\n\r\n \r\n\r\nIn this case, Thursday\u2019s inflation would have to be a real \u201cblack swan,\u201d well above the agreed-upon 3.15% core inflation forecast, to prevent the Fed from cutting rates next month.\r\n\r\n \r\n\r\nThat seems to outweigh all other concerns for equity investors.\r\n\r\n","protected":false},"excerpt":{"rendered":"

Stocks seem to be moving in an alternate reality: while indices are hitting historic highs and the market is in a bullish recovery, the underlying economic fundamentals and the real economy don\u2019t seem to fully support this. So what are the forces and factors that explain this \u201cunexplained\u201d rise? From monetary policy easing to investor … <\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[17,391],"tags":[138,323,1024,141],"class_list":["post-3061","post","type-post","status-publish","format-standard","hentry","category-financial-markets","category-market-analyses","tag-bonds","tag-stocks","tag-us-stocks","tag-usa"],"aioseo_notices":[],"aioseo_head":"\n\t\t\n\t\n\t\n\t\n\t\n\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t