The U.S. economy continues to sputter along, with persistent inflation keeping food and energy prices high, housing and rent at all-time record highs, and interest rates at historic highs. All of that led to another drop in the consumer confidence index last month, as most Americans remain pessimistic about the state of the economy heading into this year's election. But you'd never know this by watching the stock market, which continues to hum along near record highs. The S&P 500 has now gone more than 377 days without a 2% sell-off, the longest such stretch since before the Great Recession of 2008.
This disconnect between the markets and public perception of the economy is nothing new. In fact, it is normal. "There have been times back during the Depression, when people were living in tents, and the market was still up dramatically," says Richard Rosso, certified financial planner. "Why? Because of lower interest rates."
"The Fed drives the market, and the narrative right now is that rates are going to be cut."
In addition to watching the Fed, the markets also tend to follow broader narratives of where the economy is going, rather than where it is now. "Right now, AI is a big narrative driving the markets," says Rosso. "It is allegedly going to increase productivity dramatically, so the story of AI overrides a lot."
"You also still do have a lot of money out there and people spending," he continues. "That can be fiscally-driven or government-driven, but that continues to fuel certain areas of the economy."
Another possible factor in the strong market performance is optimism for a second Trump term, which would be seen as much more business-friendly than Biden.
"You have to look at the market sometimes as its own universe, and it does what it does...regardless of the economy," says Rosso.
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