It’s a “bad” question. People are still somewhat amazed and surprised that the geopolitical turbulence of early 2011 lead to a nearly 6% rise in US stocks. Conventional wisdom even gets caught off guard when it sees sensational global instability lead the S&P 500 to a 3 month gain equal to approximately 29 years worth of current 11 month CD rates2. The bad question is: ‘How can this be when the dollar is heading to zero and our nations tailspins through this atrocious economy?’
The real question is: What makes the stocks go up? Bluntly stated, there is no cause and effect relationship between global headlines and the S&P 500 quarterly results.
Corporate profit, on the other hand, does fuel stock price increases and, at $21.92 per share, the average S&P 500 company has been growing profits for 2straight years.3
Oil started spiking in late February and is the one obvious cause for concern about potentially derailing the impressive expansion in corporate profits. Yet as of this moment, nearly all the decline in US stocks since the oil spiked in February has been reversed. This means that even with all of the hyper-information about price of oil attached to global unrest, the US market looks to predict continued profit growth.
Here’s another good question: What does supply and demand have to do with all of this?
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D. Scott Bloom, CFP
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor before investing. All performance referenced is historical and is no guarantee of future results.
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