Why is the stock market still up when the economic news isn't great?

[dseag2]

With tariffs staring us in the face and a bad jobs report, why is the stock market still hitting highs? In case you're wondering, this is from Marketwatch.

Denial is driving the stock market higher — but what’s coming next can’t be ignored​

The truth about tariffs? They’ll hit company profits or bring us higher inflation — maybe both.​

By
Mark Hulbert

Investors are in denial about tariffs’ impact on corporate profits and inflation. The truth is that if companies choose to absorb tariffs, profit margins shrink. If they pass the tariffs along, inflation heats up. It’s hard to see how financial markets can escape the horns of this dilemma. That said, several factors have been working together to postpone the impact of tariffs. But this grace period looks to be about done.

Why has the U.S. stock market so far been mostly able to ignore this inconvenient truth? Because it hasn’t shown up fully in the data. For example, the blended net profit margin for the S&P 500 for the second quarter was 12.8%, according to FactSet — above the previous quarter’s net profit margin of 12.7% and higher than the year-ago net profit margin of 12.2%.

This implies that corporations preserved profit margins by passing along the tariffs in the form of higher prices. Yet the latest inflation numbers don’t show a big uptick since “liberation day” tariffs were announced in early April. As recently as June, many market analysts were predicting that the second quarter would show either lower profit margins or significantly higher inflation. “Neither of the above” was not given serious consideration, and yet that’s what happened. “Who woulda thunk it at the start of the [second] quarter?” Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, wrote in an email.

One big factor helping support stocks has been the timing of imports. Anticipating that tariffs would soon be announced, companies in the first quarter imported much more than they needed, enabling them in the second quarter to sell at pre-tariff prices. This is why GDP was reported to have contracted in the first quarter. But for the inventory buildup, GDP would have grown. Crucially, inventory buildup can’t delay the inevitable more than a few months. Silverblatt said that he expects margins to be lower in the third quarter, “as the tariff costs are passed along to consumers and inventories are replenished at a higher rate.”

Denial is driving the stock market higher — but tariffs will soon take their toll

The truth about tariffs? They’ll hit company profits or bring us higher inflation — maybe both.

www.marketwatch.com

 

[dmpi]

Targeted layoffs actually improve profitability. Only when you see revenue shrink as the result of consumers cutting back with you see the stock market backtrack. As much as you hear people whining, they're not about to cut back. Only a tiny percentage of people have lost their jobs. That's why it's tough to drive down the inflation numbers. With tariffs, companies stockpiled and have yet to work down their inventory. They've had plenty of time to work contingency plans. Powell has held rates high for too long. A recession will drive down inflation and rates down to the 2% range encouraging investors to sell bonds and buy stock. This will offset companies lower revenues. The real risk in the market isn't Trump related. It's the asset bubbles like AI or crypto blowing up.

 

[CLAX1911]

With tariffs staring us in the face and a bad jobs report, why is the stock market still hitting highs? In case you're wondering, this is from Marketwatch.

Denial is driving the stock market higher — but what’s coming next can’t be ignored​

The truth about tariffs? They’ll hit company profits or bring us higher inflation — maybe both.​

By
Mark Hulbert

Investors are in denial about tariffs’ impact on corporate profits and inflation. The truth is that if companies choose to absorb tariffs, profit margins shrink. If they pass the tariffs along, inflation heats up. It’s hard to see how financial markets can escape the horns of this dilemma. That said, several factors have been working together to postpone the impact of tariffs. But this grace period looks to be about done.

Why has the U.S. stock market so far been mostly able to ignore this inconvenient truth? Because it hasn’t shown up fully in the data. For example, the blended net profit margin for the S&P 500 for the second quarter was 12.8%, according to FactSet — above the previous quarter’s net profit margin of 12.7% and higher than the year-ago net profit margin of 12.2%.

This implies that corporations preserved profit margins by passing along the tariffs in the form of higher prices. Yet the latest inflation numbers don’t show a big uptick since “liberation day” tariffs were announced in early April. As recently as June, many market analysts were predicting that the second quarter would show either lower profit margins or significantly higher inflation. “Neither of the above” was not given serious consideration, and yet that’s what happened. “Who woulda thunk it at the start of the [second] quarter?” Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, wrote in an email.

One big factor helping support stocks has been the timing of imports. Anticipating that tariffs would soon be announced, companies in the first quarter imported much more than they needed, enabling them in the second quarter to sell at pre-tariff prices. This is why GDP was reported to have contracted in the first quarter. But for the inventory buildup, GDP would have grown. Crucially, inventory buildup can’t delay the inevitable more than a few months. Silverblatt said that he expects margins to be lower in the third quarter, “as the tariff costs are passed along to consumers and inventories are replenished at a higher rate.”

Much of the inflationary impact of tariffs is over the intermediate term rather than short term. That’s the finding of a study this spring from the Federal Reserve Bank of Dallas, entitled “Trade Costs and Inflation Dynamics.” The authors found that tariffs’ impact on inflation tends to peak about a year after those tariffs take effect. Federal Reserve Chairman Jerome Powell acknowledged this in his Jackson Hole speech last month, saying that “it will continue to take time for tariff increases to work their way through supply chains and distribution networks.”

Some idiosyncratic factors are also involved. One is an accounting rule used by retailers known as the “retail inventory model of accounting.” A CNBC analysis found that this rule, ironically, could cause retailers to overstate their profitability when costs are rising.
Could tariffs’ impact on profit margins and inflation be postponed for even longer than the second quarter? Possibly, but that theoretical possibility seems like a flimsy foundation on which to invest.

The thing I'm going to lean on is the economic Doom is probably mostly false.

 

[TobyOne]

The economic news is fine. Unemployment at 4.3, Inflation at 2.7%, interest rates at 4.3%. These are historically good numbers especially compared to
Biden's 8% inflation.

AI is driving a rally and corporate earnings are good. Will this change? Of course it can. Don't sell low and buy high .

 

[TobyOne]

The valid concern is fed government debt.

The thing I'm going to lean on is the economic Doom is probably mostly false.

 

[CLAX1911]

The valid concern is fed government debt.

Are you talking about the federal government government or the Federal reserve?

 

[Lord Tammerlain]

Markets are not always rational

The housing bubble was known in 2006, the dot com bubble was known in 1998 yet people still invested right up until they burst.

With to many dollars flowing into the economy it has to go somewhere ( bitcoin, gold, housing, the stock market). Of course as the dollars were created through debt, they can go away just as quickly ( or just create high inflation)

 

[TobyOne]

The national debt and the interest on the debt - which is now ahead of Defense spending.

Are you talking about the federal government government or the Federal reserve?

 

[CaughtInThe]

TACO

 

[Metric Mouse]

As long as we don't have a stock market like 2022 to 2024, I think people will be happy.

Everyone remembers how painful that was.

 

[CimpleMan]

AI story, prospect of lower interest rates, deregulation policy directive, and continued inflows from 40k's has fueled Stock Market gains. Tariffs are the drag on the Economy and sticky inflation from them will limit reduction of interest rates.

Will be interesting to see how Supreme Court rules on Presidential power to impose Tariffs and resulting impact. Until Tariff questions are resolved business planning and the Economy will be in a holding pattern.

 

[Integrityrespec]

With tariffs staring us in the face and a bad jobs report, why is the stock market still hitting highs? In case you're wondering, this is from Marketwatch.

Denial is driving the stock market higher — but what’s coming next can’t be ignored​

The truth about tariffs? They’ll hit company profits or bring us higher inflation — maybe both.​

By
Mark Hulbert

Investors are in denial about tariffs’ impact on corporate profits and inflation. The truth is that if companies choose to absorb tariffs, profit margins shrink. If they pass the tariffs along, inflation heats up. It’s hard to see how financial markets can escape the horns of this dilemma. That said, several factors have been working together to postpone the impact of tariffs. But this grace period looks to be about done.

Why has the U.S. stock market so far been mostly able to ignore this inconvenient truth? Because it hasn’t shown up fully in the data. For example, the blended net profit margin for the S&P 500 for the second quarter was 12.8%, according to FactSet — above the previous quarter’s net profit margin of 12.7% and higher than the year-ago net profit margin of 12.2%.

This implies that corporations preserved profit margins by passing along the tariffs in the form of higher prices. Yet the latest inflation numbers don’t show a big uptick since “liberation day” tariffs were announced in early April. As recently as June, many market analysts were predicting that the second quarter would show either lower profit margins or significantly higher inflation. “Neither of the above” was not given serious consideration, and yet that’s what happened. “Who woulda thunk it at the start of the [second] quarter?” Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, wrote in an email.

One big factor helping support stocks has been the timing of imports. Anticipating that tariffs would soon be announced, companies in the first quarter imported much more than they needed, enabling them in the second quarter to sell at pre-tariff prices. This is why GDP was reported to have contracted in the first quarter. But for the inventory buildup, GDP would have grown. Crucially, inventory buildup can’t delay the inevitable more than a few months. Silverblatt said that he expects margins to be lower in the third quarter, “as the tariff costs are passed along to consumers and inventories are replenished at a higher rate.”

Much of the inflationary impact of tariffs is over the intermediate term rather than short term. That’s the finding of a study this spring from the Federal Reserve Bank of Dallas, entitled “Trade Costs and Inflation Dynamics.” The authors found that tariffs’ impact on inflation tends to peak about a year after those tariffs take effect. Federal Reserve Chairman Jerome Powell acknowledged this in his Jackson Hole speech last month, saying that “it will continue to take time for tariff increases to work their way through supply chains and distribution networks.”

Some idiosyncratic factors are also involved. One is an accounting rule used by retailers known as the “retail inventory model of accounting.” A CNBC analysis found that this rule, ironically, could cause retailers to overstate their profitability when costs are rising.
Could tariffs’ impact on profit margins and inflation be postponed for even longer than the second quarter? Possibly, but that theoretical possibility seems like a flimsy foundation on which to invest.

It all hinges on Powell. The market plays in futures and they keep anticipating a rate drop that Powell keeps avoiding.

 

[CLAX1911]

The national debt and the interest on the debt - which is now ahead of Defense spending.

I was going to say I don't know enough about the Federal reserve to comment.

 

[CimpleMan]

AI story, prospect of lower interest rates, deregulation policy directive, and continued inflows from 40k's has fueled Stock Market gains. Tariffs are the drag on the Economy and sticky inflation from them will limit reduction of interest rates.

Will be interesting to see how Supreme Court rules on Presidential power to impose Tariffs and resulting impact. Until Tariff questions are resolved business planning and the Economy will be in a holding pattern.

Have to add record stock buybacks. $239 billion worth last quarter.

 

[TobyOne]

Its on now because of latest job report.

It all hinges on Powell. The market plays in futures and they keep anticipating a rate drop that Powell keeps avoiding.

 

[CimpleMan]

Its on now because of latest job report.

Really need a full point reduction and don't see it happening soon without resolving Tariff questions or a recession. .25 point reduction isn't going to matter much.

 

[dseag2]

As long as we don't have a stock market like 2022 to 2024, I think people will be happy.

Everyone remembers how painful that was.

Painful? 2022 to 2024? I made most of my money during that time. The stock market grew by 21.5% in 2024. WTF are you talking about? Do you ever do any research before making BS claims?

U.S. Stock Market Returns - a history from the 1870s to 2024 | The Measure of a Plan

Facts and figures on U.S. stock market returns from 1871 to 2024. Annual returns, likelihood of losing money, best / worst months, and more.

themeasureofaplan.com

 

[VySky]

With tariffs staring us in the face and a bad jobs report, why is the stock market still hitting highs? In case you're wondering, this is from Marketwatch.

Denial is driving the stock market higher — but what’s coming next can’t be ignored​

The truth about tariffs? They’ll hit company profits or bring us higher inflation — maybe both.​

By
Mark Hulbert

Investors are in denial about tariffs’ impact on corporate profits and inflation. The truth is that if companies choose to absorb tariffs, profit margins shrink. If they pass the tariffs along, inflation heats up. It’s hard to see how financial markets can escape the horns of this dilemma. That said, several factors have been working together to postpone the impact of tariffs. But this grace period looks to be about done.

Why has the U.S. stock market so far been mostly able to ignore this inconvenient truth? Because it hasn’t shown up fully in the data. For example, the blended net profit margin for the S&P 500 for the second quarter was 12.8%, according to FactSet — above the previous quarter’s net profit margin of 12.7% and higher than the year-ago net profit margin of 12.2%.

This implies that corporations preserved profit margins by passing along the tariffs in the form of higher prices. Yet the latest inflation numbers don’t show a big uptick since “liberation day” tariffs were announced in early April. As recently as June, many market analysts were predicting that the second quarter would show either lower profit margins or significantly higher inflation. “Neither of the above” was not given serious consideration, and yet that’s what happened. “Who woulda thunk it at the start of the [second] quarter?” Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, wrote in an email.

One big factor helping support stocks has been the timing of imports. Anticipating that tariffs would soon be announced, companies in the first quarter imported much more than they needed, enabling them in the second quarter to sell at pre-tariff prices. This is why GDP was reported to have contracted in the first quarter. But for the inventory buildup, GDP would have grown. Crucially, inventory buildup can’t delay the inevitable more than a few months. Silverblatt said that he expects margins to be lower in the third quarter, “as the tariff costs are passed along to consumers and inventories are replenished at a higher rate.”

Much of the inflationary impact of tariffs is over the intermediate term rather than short term. That’s the finding of a study this spring from the Federal Reserve Bank of Dallas, entitled “Trade Costs and Inflation Dynamics.” The authors found that tariffs’ impact on inflation tends to peak about a year after those tariffs take effect. Federal Reserve Chairman Jerome Powell acknowledged this in his Jackson Hole speech last month, saying that “it will continue to take time for tariff increases to work their way through supply chains and distribution networks.”

Some idiosyncratic factors are also involved. One is an accounting rule used by retailers known as the “retail inventory model of accounting.” A CNBC analysis found that this rule, ironically, could cause retailers to overstate their profitability when costs are rising.
Could tariffs’ impact on profit margins and inflation be postponed for even longer than the second quarter? Possibly, but that theoretical possibility seems like a flimsy foundation on which to invest.

I’m “wondering “ why there is no link?

 

[multivita-man]

Investors still have money to invest and it's better than putting it into bonds or cash I guess. And the companies are still returning positive results. For now. If the darling tech stocks start to miss their expected earnings, there could be a sudden and substantial sell-off.

 

[Callen]

As an ex Fed chair once said......"irrational exuberance", and he was right. AI is driving a lot of it.
"The stock market is running hot, driven by AI exuberance. Meta, Amazon, Google, Nvidia are driving the record gains on the promise AI will bring big changes to businesses. But right now, many of the players are investing more in AI than they are making."

Is AI the new dot-com bubble or something completely different? | Fox Business

www-foxbusiness-com.cdn.ampproject.org

 

[L88]

As an ex Fed chair once said......"irrational exuberance", and he was right. AI is driving a lot of it.
"The stock market is running hot, driven by AI exuberance. Meta, Amazon, Google, Nvidia are driving the record gains on the promise AI will bring big changes to businesses. But right now, many of the players are investing more in AI than they are making."

Is AI the new dot-com bubble or something completely different? | Fox Business

www-foxbusiness-com.cdn.ampproject.org

This^^^^
Corps are overselling the immediate effect of AI in their businesses, and investors are buying it.

 

[gbg3]

The market is staying stubbornly high. I wish it would take a breath and dip a bit - long enough to present at least a somewhat better buying opportunity. It's September now (known to be a seasonally "worst" month for the market), so I'm hoping maybe it will in the upcoming weeks.

 

[jpn]

I was going to say I don't know enough about the Federal reserve to comment.

The valid concern is fed government debt.

It all hinges on Powell. The market plays in futures and they keep anticipating a rate drop that Powell keeps avoiding.

The market is staying stubbornly high. I wish it would take a breath and dip a bit - long enough to present at least a somewhat better buying opportunity. It's September now (known to be a seasonally "worst" month for the market), so I'm hoping maybe it will in the upcoming weeks.

 

[jpn]

With tariffs staring us in the face and a bad jobs report, why is the stock market still hitting highs?

Economist Paul Krugman:

My read of economic and financial history is that market pricing almost never takes into account the possibility of huge, disruptive events, even when the strong possibility of such events should be obvious. The usual pattern, instead, is one of market complacency until the last possible moment. That is, markets act as if everything is normal until it’s blindingly obvious that it isn’t.​

​

The inimitable Nathan Tankus summarizes this by saying that the market is not, as stylized economic models would have us believe, a mechanism that pools the knowledge and informed judgment of millions of investors. It is, instead, a “conventional wisdom processor.” That is, it reflects views that seem safe to hold because many other people hold them — and the crowd only abandons those views when they become blatantly unsustainable.​

[...]​

Can I document these assertions? Let’s look at a couple of relatively recent examples of market complacency and myopia in the midst of clear signals of an oncoming crisis.​

​

The post continues here: https://paulkrugman.substack.com/p/why-arent-markets-freaking-out

 

[dmpi]

This^^^^
Corps are overselling the immediate effect of AI in their businesses, and investors are buying it.

When you start seeing jobs disappear because of AI, these are infact the cost savings. We've starting to see this - AI is real. However what is questionable is the lofty valuation of AI stocks.