The stock market is considered the most efficient form of predicting future economic activity. It has a strong track record, that’s for sure. So, as we round the corner into the holiday season, let’s take a look at what the stock market has said about the economy in the past. And more importantly, what it is saying about the economy in 2024.
The stock market is a strong predictor
For more than 100 years, the stock market has had a strong track record for accurately telling us what the future of the economy holds. Over the decades, more and more investors and traders have bought into its predictive value. As you know, the more people buy into something, the more it becomes a predictable result.
Hedge funds, mutual funds, large banks, and big investors have looked out into the future to make educated guesses on the economy. Current inflation reports, jobs data, labor productivity, and manufacturing are not important. What is important is a trend that can carry on with some powerful momentum for a long period of time.
So they look at economic data, company earnings reports, and reports from the Federal Reserve and other agencies. Put it all together, you can paint a big picture view.
This is not perfect of course. In early 2020, it appeared economic data was robust, and the stock market was ready to soar higher that year. But the Covid-19 pandemic got in the way of those plans, and economic projections based on the stock market were reset.
What the markets are saying about the economy in 2024
Today, the impacts of the pandemic are in the rearview mirror. The data is clean and shows some promise for the economy in 2024. This rosy outlook is often the case for a presidential election year. No wonder the stock market has been strong for the past few weeks!
Could it be the strong seasonal trend we’re in? Sure, but it is very likely that the markets are also making another prediction about the economy. With such a strong track record, it’s hard to not believe the argument.
The stock market holds great power over wealth creation and destruction, so pay attention to what it’s saying!
