Hitting the highest level since before the 2007 economic meltdown, the Dow Jones Industrials topped 14,009 today, vindicating President Barack Obama’s economic polices. While the GOP painted a very different picture before the election, U.S. stock markets, including the S&P 500 and tech-rich Nasdaq, continued to climb, riding a slew of positive economic reports, including another sold January jobs report, adding 157,000 more non-farm payroll jobs. Prophets of doom-and-gloom have all been proven wrong, especially those in Congress calling for the federal government to slash its over $15 trillion budget. Hitting 1,576, the S&P 500 was only 60 points from its all-time high, signaling that Obama’s economic recovery was gaining steam. Money flowed from bonds to U.S. stock market mutual funds, adding $12.7 billion to a bull market that keeps on charging.
When Democrats and Republicans struck a deal on the “fiscal cliff” Jan. 1, it indicated better days ahead. Postponing major cuts to government spending turned prophetic, as the economy continued to add jobs, generate more tax revenues and reduce the size of federal budget deficits. “There is a lot of money looking for a home, and people are finally deciding the bond market is done and moving money into equities,” said Edward Simmons, managing director and partner at HighTower in Portland, Maine. More upward movement in the stock market infuses the business community with the cash needed to continue the hiring cycle. Despite all the skeptics, like New York University Stern School economist Nouriel Roubini, Obama’s economy has moved progressively higher. With the presidential election settled, Republicans are no longer hoping for bad economic news.
When it comes to bearish predictions, there’s no shortage of cynics, despite undeniable economic trends that bode well for exports and domestic manufacturing. With the help of Federal Reserve Board Chairman Ben S. Beranke, Obama has enjoyed nearly three years of economic growth, adding over 6 million jobs to the U.S. economy. “I see a rotation [of assets] pushing the market up in the face of not-massive amounts of good news,: said Simmons. “People are overlooking the higher risk of equities,” driving more capital out of sluggish investments, like bonds and interest-bearing instruments. For the past year, real estate, one of the main drivers to a growing economy, has been improving, with hot real estate markets emerging around the country. As real estate improves, consumers have more cash to burn in the economy, further stimulating economic growth.
Republicans in the House, like Tea Party favorites Rep. Eric Cantor (R-Vir.) and former GOP VP pick Rep. Paul Ryan (R-Wis.) or Senate Minority Leader Mitch McConnell (R-Kt.) and Sen. Jeff Sessions (R-Al.) haven’t caught up positive economic developments. They’re still pushing massive cuts to the federal budget, despite the fact that current economic growth could balance the budget by the 2014 midterm elections. Manufacturing growth, consumer sentiment and construction spending all picked up in January. “All the data seems to keep point to a slowly, steadily improving economy,” said Eric Ruby, chief investment officer at North Star Investments. Management Corp in Chicago. If you listened to former Massachusetts Governor and GOP presidential candidate Mitt Romney and his VP pick Ryan, you’d believe the economy was heading in exactly the wrong direction.
If you look at historic trends, there’s time ahead before the next significant market correction. Despite the risks, equities have become the preferred place for average investors to receive the best bang for their buck. While there’s still some uncertainty, it would take a major calamity, like a new war, to drive investors back to bonds, gold or liquid assets. When Wall Street thrives, it pulls up Main Street by contributing more jobs into the economy. With employment trends moving upward, expectations are strong for more tax revenue, reducing federal deficits and spurring more economic growth. Economic growth helps Congress justify more spending, less cutbacks and more latitude when it comes to dealing with the “debt ceiling.” As economic growth heats up, there’s less need for the Congress to slash government spending to balance the budget and spur more business activity.
Recent economic reports all point toward an expanding economy, prompting the Fed to eventually raise interest rates. While Beranke said he’d wait until 2015 to raise rates, current economic trends suggest a different timetable. With Obamacare due online in 2014, the government’s going to need all the cash it can get to help subsidize the largest heath care expansion in U.S. history. Republicans in Congress looking to slash federal spending must carefully recalculate the strategy for expanding the current business cycle. While markets will no doubt correct at some point, there’s enough life in Wall Street for the current rally to continue until some major calamity gives markets reason pause. As Wall Street and the real estate market continue to expand, consumers will spend heartily into the economy, generating more tax dollars and boosting the nation’s GDP.
About the Author
John M. Curtis writes politically neutral commentary analyzing spin in national and global news. He’s editor of OnlineColumnist.com and author of Dodging The Bullet and Operation Charisma.