If the US Economy Is Doing So Well, Why Is the Stock Market Doing So Badly?

If the US Economy Is Doing So Well, Why Is the Stock Market Doing So Badly?

A new client writes, “So . . . why should I not sell all the stocks I still have a profit in?”  

That is a reasonable question.  From the September 20th all-time high, the major averages have taken quite a pounding.  

The S&P 500 is down 10.5% from its record high, while the NASDAQ is down 14.7%.  The FAANG stocks are in bear market territory, down an average of 22.5%.

How can this be, when the US economy is doing so well?  For example, Consumer Confidence is at the highest level since right before the 9/11 terrorist attack, and at the second highest level since measurements began in 1967.

Business confidence is at the highest level since 1983.

The US Unemployment rate is at the lowest level since 1968, with a record 157 million Americans employed full-time.  The participation rate, at 62.9%, remains below the record level of 67.2%, which prevailed around 2000, which means that at least 10 million additional Americans could be working, but are not.  Despite relatively stagnant wage gains, US Real Median Household income is at a record $62K/year.

Company earnings for Q3 2018 were up 25.6% on an 8.4% increase of revenues (a record level.)  79% of companies beat estimates.  Thanks to the tax cut, US corporations are swamped with cash and have already used $1 trillion to buy back stock.

So nothing but good news, right?  Yet this is the second time this year we’ve seen a 10% or more sell off.  What do stock traders know that average Americans don’t know?

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