The Stock Market v. the Economy

What is good for the stock market is not necessarily good for the American people.

Sometimes the stock market reveals economic reality. A sudden plunge usually means that people are realizing that economic productivity was being grossly exaggerated. So now they are making a “correction.”

[See also, “Did the Stock Market Receive a Secret Bailout?]

But other times the stock market is a distraction from economic reality. Here is an example: “Stocks Are Mixed as Crude Oil Closes Worst Month of 2015.”

Stocks were mixed by mid-afternoon Friday as crude oil prices closed out their worst month this year.

The S&P 500 was down 0.14%, and the Dow Jones Industrial Average fell 0.23%. The Nasdaq gained 0.08%.

Earnings from major oilers Exxon Mobil and Chevron pressured the Dow on Friday as they face the challenge of lower oil prices. Exxon shares fell nearly 5% after reporting its lowest profit since 2009 and generating sales one-third lower than a year earlier.

Chevron slid 5% after reporting earnings of 30 cents a share, down from $2.98 a share a year earlier. Revenue fell 33% to $36.83 billion but came in slightly above estimates.

Other energy stocks sold off in sympathy. BP (BP), ConocoPhillips (COP), Statoil (STO) and PetroChina (PTR) fell, while the Energy Select Sector SPDR ETF (XLE) slid 2%.

West Texas Intermediate crude closed 2.6% lower on Friday to $47.12 a barrel. Crude fell around 20% in July.

“Output from the US is the highest in over thirty years,” Schneider Electric analyst Daniel Holder wrote in a note. “This, combined with record production from Iraq … and concerns over slowing Chinese demand growth continue to pressure prices down.”

So, as sorry as we feel for people with a lot of energy in their portfolio, or for employees in the industry, is the average American hurt or helped by lower fuel prices? Obviously, he is helped! We would all be massively benefitted if fuel and energy prices went lower.

So in some cases the stock market means nothing to the real American economy!