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Reminder: Wall Street Does Not Equal Main Street


  • As the underlying economy lags, stocks surge ahead on hopes that the Fed will save the bull market.
  • There is a rift forming between Wall Street and the Main Street economy. Favorable financial conditions and buybacks bolster stocks, but the economy is stumbling.
  • The lie that we investors tell ourselves will soon be exposed as false.
  • What is the lie? That corporate earnings per share is a measurement of the health of the economy.

As the market keeps running joyously up and slumping anxiously down on speculation of Fed interest rate actions, I thought somebody should issue a reminder: Wall Street is not Main Street.

There may have been a day when one could simply look at the performance of the stock market to gauge the health of an economy, but those days are no more. Or, at least, the relationship between the stock market and real economy is more attenuated now than ever before. If you squint, you can see a resemblance. But it's faint.

Let me demonstrate this to you.

Interest Rate Cuts Do Not Equal Prosperity

Fed rate cuts have been driving up the stock market for months, even while many underlying economic measures have been fraying. Unemployment may be near record lows, but the downward movement of the rate has slowed from its previous trend in place since 2010. Actually, there have been two trends in the unemployment rate since 2010: one from 2010 to 2015, in which unemployment fell fastest during this cycle; and the other from 2016 to 2018, in which the trend in unemployment noticeably slowed.

Source: Trading Economics, edited by author

It appears that this year, 2019, we are witnessing another slowdown in the trend of falling unemployment.

Now, one might be tempted to think that the period of zero interest rates from 2010 to 2015 created this extended trend of falling unemployment, while rising interest rates in 2016 caused the trend to change. One need only look to the many economic indicators that had been fraying in 2015 to realize that the change in trend had nothing to do with interest rates.

In any case, despite the exuberant, upward dance of stock averages since May of this year in response to a likely rate cut, what realistically could

This article was written by

Austin Rogers profile picture
Become a “Passive Landlord” with our 8% Yielding Real Estate Portfolio.

I write about high-quality dividend growth stocks with the goal of generating the safest, largest, and fastest growing passive income stream possible. My style might be called "Quality at a Reasonable Price" (QARP) in service to the larger strategy of low-risk, low-maintenance, low-turnover dividend growth investing. Since my ideal holding period is "lifelong," my focus is on portfolio income growth rather than total returns.

My background and previous work experience is in commercial real estate, which is why I tend to heavily focus on real estate investment trusts ("REITs"). Currently, I write for the investing group, High Yield Landlord.

Analyst’s Disclosure: I am/we are long EDV. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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