We wish everyone a Happy Halloween via the stock market. This Sunday morning, we examine perspectives and data reflecting diverging stock market sentiments.
(Images sourced at Shutterstock)
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Rick Newman notes this interesting statistic in his October 15th Substack column, “Trump really needs a hot stock market”:
In their October 15 edition of TLR on the Economy, “At least a yellow flag,” Doug Henwood and Philippa Dunne dig deeper into sentiment via the U. Michigan Survey. They note the deterioration in the old “Ronald Reagan Test.” They have generously granted permission to share an extended quote and a chart that demonstrates the falloff in sentiment.
As we often note, expectations are often an extrapolation of the present and recent past more than any kind of portent of the future, and as chart 10 evaluations of well-being now vs. five years earlier are some of the lowest in history. They’re not quite as low as they were in 2011–2012, when memories of the Great Recession were very much alive, but they’re lower than they were at the inflation peak in 2022—and considerably lower than in late 1980, when Ronald Reagan asked his classic question, “are you better off than you were four years ago?”
Links:
(Data for 1968–1985 were collected at irregular intervals; missing periods are interpolated. Data from September 11 onwards are monthly.)
The state of long-term expectations, to borrow the title of chapter 12 of Keynes’s General Theory, is looking far gloomier than you’d expect in an economy where unemployment is close to multi-decade lows and inflation is off the boil. Inflation is, perhaps, warming again as it trends at or above 3% depending on which estimate you use.
Specifically, expectations for personal finances over the next five years … look surprisingly dismal. Though off its May low—probably a reflection of the “Liberation Day” tariff panic—it’s still well below any reading before 2025, and lower than the inflation peaks of 2022 and 1979–1980.
When James Carville said, “It’s the economy, stupid,” he was right. At the end of the day, Americans tend to vote their pocketbooks, which means those who are holding stocks with the S&P 500 Index at new all-time highs are feeling the positive “Wealth Effect.” They are the ones who are driving the consumption side of the American economy. And they may not like the change in some consumption prices due to the Trump Tariff War, but they can pay the increased cost anyway, so it doesn’t affect their sentiment.
But those without a positive wealth effect are experiencing increasing pressure. The gap between the “Haves” and the “Have Nots” seems to be widening and widening.
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Meanwhile, the news flow is continuing its alarming story. More and more folks tell me they turn it off. Whether Hannity or Maddow is not the issue. In my opinion, the growing distrust of media is poisonous.
A growing number of viewers don’t like the continuing partisan anger and hate coming across their social media feed or their TV. And they may be Republicans or Democrats or Independents, but they don’t believe much of what they hear from politicians.
It seems to me that the growing political party in America is actually the “throw them out” party. Throw out the incumbent, whether Republican or Democrat. Sometimes, in moments of frustration, I find myself leaning that way more and more. I deplore the divisive, highly partisan R or D approach to governance, where the only thing that gets done is damage.
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Rick Newman warns that the political outcome is increasingly dependent on the stock market. He also notes how Trump’s approval ratings have been slipping when it comes to other elements in the MAGA political agenda. A good example of slippage is the quiet disaffection from Trump that is developing in Florida’s Cuban-American community. See this Washington Post story:
Finally, Project 2025 is rolling out as it was written, and the effects are starting to show. I wrote about it several times during the election cycle. Whether you agree with it or not, it is here. Trump disavowal of Project 2025 during his 2024 presidential campaign has segued post-inauguration to a full Trump endorsement, and the former co-author of Project 2025 is now the budget director. So Russell Vought is shrinking the US government. More and more folks are seeing the many impacts, and many don’t like them. That discontent can only get worse as the federal government’s disruption of the nation’s healthcare system intensifies.
These sentiment trends and indicators, taken together, do not reflect the optimism intermittently evident in the stock market as far as I can see.
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Gene Ludwig, chairman of the Ludwig Institute for Shared Economic Prosperity and author of The Mismeasurement of American: How Outdated Government Statistics Mask the Economic Struggle of Everyday Americans (a new release), offered a thought-provoking perspective in Politico this past week. Here’s his thesis—the entire piece is worth a read:
What neither side of our political system fully understands is that Wall Street isn’t particularly focused on the overall health of the economy, certainly as it affects low- and middle-income Americans. Markets think in quarters and years, in profits and returns. Families — and voters — plan for lifetimes and focus on practical needs like food on the table, a stable home, time with loved ones and access to education. Washington too often mistakes Wall Street’s short-term optimism for evidence of long-term health, leading to policy complacency even while household balance sheets erode.
In short, there’s a lot that Washington doesn’t understand about Wall Street and a lot that Wall Street doesn’t understand about the broader American economy.
I believe it is wise to consider other points of view when making investment decisions. So I am adding this link to a must-read offering from Seeking Alpha. Please note that I am not in agreement with this writer, but I want to share the piece because it is thoroughly supported with the writer’s selection of data. Remember, one can always find data to support a point of view or other data to discredit it.
The article, titled “It Looks Like a Bubble, It Feels Like a Bubble, But It Isn’t,” is provocative and invokes Howard Marks. Readers who do not already have an account at Seeking Alpha can create a free one in order to read this piece.
Rising stock prices are a feel-good event for those who own stocks. The rest of the population is experiencing some damage to the economy as the non-AI tech sector portion shows economic pressures. And there’s a shrinking labor force. And more and more turmoil is found in ICE action reporting. Fortunately, the many millions of people marching to protest Trump with the “No Kings” mantra were nonviolent.
So when the eventual stock market correction arrives, it just may be a little scarier than folks expect. But when and if are not guaranteed. Maybe the stock market is right, and prices are headed higher without a stiff correction.
Maybe Trump’s unusual policy of trade war protectionism may work, and maybe the outcome might be good for America. If the latter happens, Trump 2.0 will have defied history and delivered something that the Hoover’s Smoot-Hawley attempt or the Nixon administration tariffs and wage price controls failed to deliver.
I’m doubtful. An old expression seems right to me: “In tariff wars, the guns are pointed inward.”
FL Gov DeSantis is trying to take the USF Sarasota-Manatee campus and transfer it to New College. IMO, this would be a disaster for the Sarasota-Manatee community and the state.
Trump’s Venezuela actions have lessened the Maduro threat to oil production in various South American countries. The outcome has possible bullish scenarios for oil.
Treasury Secretary Bessent favors a “strong dollar.” He works for a president who has said he wants a weaker dollar. With a single chart, we examine what markets are saying.
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