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Dow closes at record level; investors bask in stock surge amid stumbling economy
Question of the Day
Jeffrey Kleintop, chief market strategist at LPL Financial, said a divergence has emerged between businesses that are in excellent financial health and consumers who remain frazzled and beleaguered by rising taxes, high gasoline prices, political bickering and limited job opportunities.
“Weak income growth and hiring is keeping a lid on consumer spending power,” with higher payroll taxes and gas prices “adding to the drain” this year, he said. Although consumers are being nicked by the loss of some government services with the latest round of budget cuts, they could take an even bigger hit at the end of the month if the stalemate in Washington results in a full-scale government shutdown, he said.
With consumers feeling downtrodden, the stocks of retailers and other companies tied to the consumer have been drooping, while industrial stocks tied to business spending have been surging, he noted. Overall, he expects the trend to keep a lid on stock market gains this year, even with the Dow now in record territory.
Robert Reich, a secretary of labor in the Clinton administration, said the bull market for stocks has resulted in a bear market for workers, because it is drawing its strength in part from the weak wage growth of average Americans, which has averaged less than 2 percent a year since 2009.
“The stock market is basically back to where it was in 2000, while corporate earnings have doubled since then. Yet the real median wage is now 8 percent below what it was in 2000, and unemployment remains sky-high,” he said. Corporations have been investing in technology rather than workers, and the profits from big productivity gains coming out of those investments have been largely reaped by investors, he said.
Meanwhile, unemployment at 7.9 percent has zapped workers’ power to bargain for better wages, leading to the largest share in 60 years of corporate income going into profits rather than wages. That is why many Americans are puzzled or even outraged by the market’s gains this year, as its fortunes do not reflect the experiences of rank-and-file workers, Mr. Reich said.
© Copyright 2014 The Washington Times, LLC. Click here for reprint permission.
About the Author
- Economists see signs of another market bubble
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