Over the past century, the U.S. stock market typically turned down prior to the onset of a recession. You did not need to predict economic contraction; rather, you monitored the Dow and the S&P 500 because the benchmarks acted like leading indicators of bad times ahead. (Investors checked the market internals to get a sense for whether or not stocks themselves might “roll over.”)

Stocks demonstrated their predictive powers as recently as October of 2007. The bear market eroded 20%-30% of value before the National Bureau of Economic Research (NBER) even acknowledged the recession’s inception date (12/07) in October of 2008.

On the flip side, U.S. equities in today’s world do an atrocious job at recognizing economic sluggishness. The skepticism of chief financial officers (CFOs) at the largest corporations just hit two-year lows. Small business optimism registered its worst reading in 15 months. Meanwhile, you’d have to travel back to November of 2014 to find the sort of pessimism that exists today on the part of the American public.


“Gary,” you protest. “People do not always act based upon the way that they feel.”

Just the facts, then? The industrial sector – an economic segment that incorporates manufacturing, mining, and utilities – posted its weakest year-over-year (YOY) growth in more than five years. Wholesale sales (YOY) have been in steady decline since 2011, contracting 3.4% in June. Retail sales plummeted in June as well. (No snow. Was it just too hot outside?) And perhaps most importantly, both wage growth and employment (as a function of the population) have shown lackluster improvement since the end of the Great Recession in mid-2009.

wage growth


The take-home is twofold. First, Americans do not believe the economy is improving because they are not earning more money or securing higher-paying employment. For instance, the erosion of roughly one-and-a-half million higher-paying manufacturing jobs has been supplanted by the same number of lower-paying waiter/bartender positions. This dynamic hardly represents economic well-being.

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