Is The New Record High In Stocks Irrational?

When stocks repeatedly break new all-time highs, as they have done in recent weeks, you have to start wonder if investors are growing irrational, overly exuberant. Here are the facts.

These four charts show the latest reading of key fundamental economic factors driving record financial market prices. Let’s start with the latest figures on the nation’s gross domestic product. Third quarter growth tallied by the federal government’s Bureau of Economic Analysis came in at 1.93%. The net of three of the four factors in economic growth — business investment, net exports, and state and local government spending — did not contribute to growth but consumer strength offset them and was the source of the 1.93% quarterly growth rate for the U.S. in the third quarter of 2019. Meanwhile, the manufacturing sector — which accounts for just 11% of U.S. growth — remained in recession but rebounded slightly last month, according to the latest data from the Institute of Supply Management. It may have bottomed. The Federal Reserve’s key lever in promoting growth, the yield curve, uninverted, indicating that fears of a recession may be overblown, and the financial obligations ratio — a key measure of consumers’ free cash flow after paying monthly fixed expenses — remained near its strongest level in decades after ticking lower last quarter. No one can predict the next move in the stock market. However, the latest economic data indicates that the record stock prices are pretty darn rational.

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