Wednesday, November 26, 2008, 5:17 PM
US stocks gain, economic data falls.
Over the past four days, US stocks gained the most (percentage wise) since 1933. On the surface this is significant, because 1933 marked a significant turning point for stocks even though the economic crisis had a ways to go yet.
But is that a valid linkage to make?
Now, the stock market is sometimes called “the great discounting machine” for its supposed ability to sniff out great changes in trend well before those changes are obvious elsewhere. In times past, stocks have made a habit of rising months in advance of job gains, economic activity, profit gains, and other such economic data.
However, I will note that the stock market has gotten a bit off the rails lately and it completely missed the warning signs of an impending credit crunch that were given off more than a year ago. The stock market carried on and made new highs even as the financial underpinnings of our entire system were collapsing into the bay. So in some circles (mine included), “the great discounting machine” has lost some of its utility and impartiality along the way.
Today the economic news was horrible.