We have the pleasure of spending quite a bit of time among the "1 percenters" - American families whose annual income exceeds $500K. Our favorite cocktail party question this summer is: "Given everything you've heard recently, do you think the stock market is up or down this year?" About a third of people estimate "down", the remainder estimate "up." We reply, "The answer is "Up. By what percentage do you thing the stock market has gained this year?" Most respondents, including Wall Street professionals, guess "low single digits?" The answer is: through August 7th, the S&P 500 is up 11.3% on the year and is within 0.8% of the 52 week high set April 3rd.
This exercise demonstrates once again that when it comes to investing decisions, "perception is more important than reality." At present, US investors perceive that investing in stocks is a sucker's game, but if they keep all their cash in money markets at 0.01%, they'll never be able to retire. More important to most Americans is that the value of privately owned businesses and real estate is still well below the records levels set prior to the financial crisis. So consumer confidence remains in the toilet. Business confidence, which includes the desire to hire more employees, isn't much better.
As a result, the US economy has entered yet another soft patch - still growing at 1.5%, but well below potential of around 3%. One bit of good news - housing construction and home prices clearly bottomed in the last year and are moving modestly higher.