Why Aren’t Stocks Falling?
No good reason, says Felix Salmon.
As SAR notes, the "longer and deeper recession" meme is "becoming the popular view" — it’s increasingly difficult to find people who really think we’ll bounce back in the second half of this year, and economists generally are much more bearish now than they were a couple of months ago.
So why is the stock market up 20% since then?
My feeling, mainstream as it may be, is that stocks are drifting upwards in blissful ignorance of reality, much as they did for nearly all of 2007, even after the credit crisis first hit. The panic sellers and the people desperately needing liquidity have left, volumes have fallen (as they always do around the holidays, no news there), and volatility has decreased. And so both value and momentum players are feeling increasingly comfortable rotating back in to the market.
The lesson of the past two years is that the stock market is a lagging, not a leading, indicator. I have no faith in this rally whatsoever; I hope that I’m wrong, but I just don’t see the current stock market reflecting an economy which is hugely reliant on retail spending and where holiday-season sales were the weakest in four decades. It’s always calmest before the storm, and I fear another gale might be brewing.