Why are stocks up when economy is down?

The Big Sequester smacked us this week. And stocks went up.

We have record numbers on food stamps. We have so much debt we will soon have to invent a word above “trillion.” And stocks went up.

The economy grows like snails dance. Thousands of Obamacare regulations and dozens of its taxes are about to slam it. And stocks went up.

Our last recession was the worst since Moses skipped rope. According to the President it was. Our recovery? Abysmal. And stocks went up.

The President and the Republicans cannot agree on the day of the week. The Senate cannot write a budget. For three years, no budget. And stocks went up.

The only new jobs we created the last several years were in the Federal Government. And stocks went up.

How far up? Four years ago the Dow slumped to 6,547. If you invested across the board in stocks then, you should have more than doubled your money since. The Dow is now above 14,000. Yes. You could have doubled your money in four years.



What is the deal? When the economy is a sick puppy, why do stocks go up? I suggest you set aside the next 100 answers you read to this question. Trash them. And focus on a single word, a single concept: Profits.

Profits drive stocks upward. Through gloom and political farce. Through wars and peak oil and global warming. Or climate change, as it is now. Profits drive stocks upward. And American companies are making more and more profits.

How can this be? How can they make more profits amidst this mess? They make more profits in a few huge ways. One is that they do business elsewhere. Hundreds of millions of Africans, Indians, Chinese and others are stampeding into the middle class. Actually they are driving into it. In their new cars. Their first cars.

They are buying their first computers and houses and microwaves and insurance and … well, most everything you can think of. And our big companies are in on the action. From Coke to Big Macs to Apples and software and games, our companies are making more and more profits overseas.

Meanwhile, in the U.S. they are making more profits by way of lower labor costs. Many big companies keep trimming workers. And trimming bonuses of those who remain. They get away with it because not many employees can demand more in times like these.

Lastly, energy costs have fallen for them – especially if they burn natural gas. And interest rates on the money they borrow could not be lower. Both of these add up to more profits.

Most so-called experts predict profits will rise another nine percent this year. And a further nine percent next year. We will see.

Meanwhile, if you want to be entertained listen to the bobbing heads on the business networks. They will give you a thousand reasons why the stock market will go up or down. After the entertainment, understand what ultimately drives the market. Stocks go up when profits go up. Stocks go up when investors believe profits will go up in the future. It is as simple as that.

From Tom ... as in Morgan.

Find Tom on Facebook. For more columns and for Tom’s radio shows (and to write to Tom): tomasinmorgan.com.

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