Trump: ‘Don’t Just Look at the Stock Market’

Epoch Times Epoch Times The stock market is a great indicator, but we do want to see our stock market rise, you know? “I’m not going to sink our wagon to the stock market,” Trump told reporters at the White House. And during such times, the stock market may not accurately reflect the economy at large, he said.

A Framework for Understanding Economic Transitions

What Does an Economic Transition Mean?

So what is an economic transition? Several factors can lead to this, such as policy changes, technological advancements, or global events. These sorts of transitions bring with them temporary times of adjustment, with markets and industries having to align to new realities.

Example of Economic Change in History

• Post-World War II: After shifting from wartime production to consumer goods, the U.S. economy experienced rapid growth and suburbanization.
• Digital Age: The late 20th century marked the shift from manufacturing to information and technology-based economies, transforming job markets and industries.

Stock Market: A Limited Economic Barometer

The Disconnection Between the Stock Market and the Real Economy

Although the stock market mirrors investor sentiment and company valuations, it does not necessarily reflect the health of the real economy. Specifically, this disconnect stems from the following factors:

• Before the Second World War: Speculative trading led by traders with short-term strategies can cause volatility regardless of drivers of economic fundamentals.
• Quantitative Easing: This can inflate asset prices without economic growth.

Case Study: Chinese Stock Market Fluctuation (2015-2016)

By looking at the case study of the Chinese stock market fluctuation in 2015-2016, we can see how certain trading behaviors can change over time.

The reference was during that period when China’s stock market plunged a third of its value in under a month. But the wider Chinese economy continued to expand, showing that what shines in stock market performance doesn’t always reflect economic health on the ground.

The Current Economic Transition: The Drivers

Policy Shifts

There are structural changes happening in the economy with new trade agreements and fiscal policies being introduced recently. These changes are intended to correct trade deficits and boost domestic sectors, but can also create immediate uncertainties.

Global Economic Conditions

Global dynamics, including supply chain issues and geopolitical tensions, are affecting the U.S. economy. These external factors play a role in the complexity of the current economic transition.

Adapting to Economic Changes: Advice From Experts

Broadening Economic Indicators

Economists suggest looking at a broader range of indicators beyond the stock market to gauge the health of the economy, including:

• Employment Rates: Indicates wage growth and consumer purchasing power.
• Gross Domestic Product (GDP): Measures overall economic output and growth.
• Inflation Rates: Represents changes in purchasing power and cost of living.

Sustainable Investment Insights

It is never wise to react to short-term fluctuations in the market, and financial advisors will tell you during transitional economic times such as these, “stick to long-term investment plans.”

While the highs and lows of a market can be scary — and the volatility underground can indeed be frightening — portfolio diversification and a balanced tilt can help moderate those risks.

Conclusion

President Trump himself advised against focusing exclusively on the stock market, and it has illustrated how it is critical to have a 360-degree view of the health of the economy.

When there are indicators of economic change, be it up or down, being diligent in observing a range of economic indicators and those affecting them in the broader context will help individuals and businesses alike through this transition period.

FAQs

So why shouldn’t we use the stock market as a measure of economic health?

The stock market is a mirror of investor sentiment; things like speculative trading and monetary policies can drive stock prices higher or lower, regardless of their relevant reflection of the bigger economy.

How do we know what the economy is really like?

These include employment rates, GDP growth, and inflation rates, providing a deeper understanding of economic health.

How to hedge an investment portfolio amidst economic transitions?

It can help investors maintain long-term strategies and avoid taking short-term moves based on sudden fluctuations in the market.

How much do government policies matter in economic transitions?

For example, government policies like fiscal stimulus or regulatory changes can create significant changes in economic dynamics, leading to transition phases.

How do people stay abreast of things during economic changes?

Keeping abreast of quality news sources, talking with financial professionals, and watching various economic signals are ways to make informed decisions in changing economic landscapes.