Updated: May 3, 2013 12:15PM
Which way will the economy, and the stock market, go? Both have been see-sawing back and forth, temporarily in a balancing act that has bulls and bears — and economists — holding their breath.
The stock market registers this standoff not only in the daily ups and downs but in dwindling volume, as each side waits for economic reports to bolster its case that either the economy will slip back into recession, or move on to a stronger recovery.
Conflicting outlooks are nothing new in the stock market. After all, the stock market is the place where willing buyers agree to disagree — at a price. For every 100 shares of stock that is sold because someone feels the price won’t go higher, there is a buyer of that stock who is betting on future gains.
But rarely have the economic signs been so mixed for so long, nor the balance so fragile. Which way will these statistics tilt?
† Employment. While millions remain unemployed, it has appeared that the new claims for unemployment were coming
down each week. But the latest figures have shown an uptick in jobless claims, leading to worries about the staying power of the recovery.
† Corporate profits. You might not care much if businesses are making money — but companies only hire people when they are profitable. We’re at the start of corporate earnings reports for the first quarter. Early reports from JP Morgan Chase and Wells Fargo show good profits — but the stocks dropped anyway on fears about future earnings.
† Consumer confidence. Consumers have been spending again, helping the economy and rebounding from the dip that took place after last summer’s debt ceiling debacle. But last week’s University of Michigan survey of consumer confidence dipped slightly in April. The barometer of current economic conditions was at its lowest since last December — although expectations for the future remained strong.
† Energy prices. It’s hard to remain confident about the economy when you see the impact of rising energy prices every time you fill up your gas tank. That leaves less money for consumers to spend on everything else and raises fears for future price increases on everything from food to travel. Oil prices have moved from a low of around $76 per barrel in the past 12 months to a recent high of $113 — and are still trading at $103 per barrel.
† Global economic woes. When China reports that its annual growth rate slipped to only 8.1 percent in the first quarter — the lowest since 2009 — there are concerns about a global economic slowdown. At the same time, IMF chief Christine Lagarde publicly worries about continuing recession risks in the European economy. Again, Americans might not care too much about what goes on outside our own economy — except that if the world slows, there will be fewer buyers for our exports, impacting jobs at home.
Amidst all the uncertainty generated by the economic reports, Fed officials have been sending mixed signals about whether they will do another round of “easing” to spur the economy. And Congress refuses to act on just about anything in this election season — from creating a budget to dealing with the debt ceiling, or clarifying tax rates and rules, which will expire at year-end.
Is it any wonder that both the stock market and the economy are see-sawing back and forth, maintaining a tenuous balance in the face of all this uncertainty? If the markets can’t figure it out, take the hint. This is no time to be heroic in your investments. Balance may not be so rewarding, but it certainly won’t be so punishing. That’s the Savage Truth.
Terry Savage is the Chicago Sun-Times’ nationally syndicated financial columnist and a registered investment adviser. Post personal finance questions on her blog at
TerrySavage.com and blogs.