We are often asked about the apparent disconnect between happenings on Main Street versus Wall Street. Investors notice markets running in one direction, while business owners notice things going in another. So, who has the right perspective? In this blog, we explore the relationship between economic growth and Standard & Poor’s operating earnings to develop a framework for connecting the dots between the two streets. We then address the “vibecession” phenomenon.
Businesses struggling with a lack of qualified job applicants and rising input costs, along with consumers paying more for less, created a “vibecession” with all of this happening as stocks kept hitting all-time highs.Source: LPL Research, Bureau of Economic Analysis 05/16/24 Both streets, if you will, rely on each other. Financial markets need to run smoothly for businesses to access capital, and businesses need to run profitably and credibly to earn investors’ attention. So, if our destination is a flourishing economy, Wall Street needs Main Street and Main Street needs Wall Street as they both serve separate but parallel functions.
If U.S. equities slow down, market participants may turn to other geographies for opportunities. LPL Research remains neutral on developed international equities. Within international, the outlook for Japan continues to remain positive as the country emerges from its decades-long battle against deflation yet accommodative monetary policy. Better recent performance in Europe is encouraging as economic growth has shown signs of bottoming in recent weeks as the U.S. dollar rally has paused.
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