Summer Savings! Get unlimited digital access for 13 weeks for $13.


News Opinion Editorial

Dow is up: Happy days here again?

Economist John Kenneth Galbraith once observed that there are two kinds of market forecasters, those who don't know and those who don't know they don't know. That is well illustrated by the current disconnect between Wall Street and Main Street, as the market's leading indicator, the Dow Jones Industrial Average, continues to surge forward while the overall outlook for the U.S. economy appears mixed at best.

The Dow closed Tuesday at an all-time peak of 14,253.77, and many believe that the bullish trend will continue even if there is some profit-taking in the short term. Price-earnings ratios are not at levels more typical of market peaks quite yet, and the Dow still hasn't fully recovered from October 2007 levels when adjusted for inflation.

Naturally, conservatives have been quick to suggest that the robust Dow shows that sequester cuts are welcomed by Wall Street — or at least are not as threatening to the economy as President Barack Obama and the Democrats have suggested. But that would imply that the market is responding in some logical, thoughtful way to Washington's political establishment, or even to the economic reality as most of us experience it, and not the chaotic hurly-burly of global markets and unpredictable investment decision-making.

More likely is that nobody has any idea what the rising Dow means, nor can they, as Mr. Galbraith counseled, predict what's going to happen next. But the bull market does point to a resiliency in the economy and perhaps to some degree reflects strong corporate earnings (not to mention low borrowing costs, thanks to Federal Reserve monetary policy), fundamentals that should support further growth.

Whether that growth will benefit most Americans or just those at the top of the corporate heap remains to be seen. Many Americans will see the market upswing reflected in the monthly statements of their investment and retirement accounts, at least to the degree they have money in the stock market. Others are not so fortunate, but they, too, may yet benefit if rising stock values persuade more companies to expand and hire. Indeed, early indications suggest the private sector may have added nearly 200,000 new jobs in February.

Unfortunately, it will take a lot more than that to restore employment and consumer earning power to pre-recession levels. This recovery has featured no lack of corporate profits, but too little has trickled down to workers. Reducing the nation's 7.9 unemployment rate further ought to be a top priority for all — government, the private sector and the financial industry included — but it often doesn't feel that way.

The indiscriminate and abrupt budget cuts forced by the sequester certainly aren't designed to put people to work or ensure a broad and growing middle class. The across-the-board cuts at the Pentagon and a myriad of other agencies affected by the sequester may or may not produce the disastrous consequences President Obama and others forecast, but this much is clear: We can expect a lot more partisan squabbling before anybody gets serious about enacting policies that foster widespread prosperity.

The next big test is the continuing resolution, the stopgap measure needed to keep the federal government going past March 27 and for the remainder of the fiscal year. The good news, at least for the moment, is that the parties don't seem to be doing nearly as much line-in-the-sand drawing or chest-thumping. Both sides say they intend to avoid a government shutdown.

But that could change, as Republicans seem focused on restoring defense spending hampered by the sequester cuts and Democrats rally behind other programs, like early education and health care reform. There have been too many cliff-side standoffs over the last several months to feel particularly sanguine about a sudden spirit of cooperation now. Even Charlie Brown is apt to doubt Lucy's commitment to holding the football in place after so many disappointments.

Of course, that only makes the Dow's performance all the more remarkable. It would be nice to think those traders pushing stock values ever higher knew something that the rest of us didn't — that it's bound to work out for the U.S. economy just fine in the end. The more realistic view might be to remember how bullish the market looked in the fall of 1929 after its nine-year upward run, even as Congress debated the Smoot-Hawley Tariff Act.

The bottom line is that whether another record Dow closing is set today, tomorrow or next Tuesday, it could be a sign of improvement or just another bubble ready to burst. Perhaps it's merely the result of a lot of investors fed up with low bond yields. Whatever the cause, it's out of our control. Better to focus on what is within our power, at least theoretically — demanding our elected leaders bring a balanced and rational approach to growing the economy and reducing the budget deficit.

Copyright © 2015, The Baltimore Sun
Related Content
  • Republicans have eviscerated the middle class, and Democrats have let them

    Republicans have eviscerated the middle class, and Democrats have let them

    Dan Rodricks' column "Let's help the poor, but not close to home" (Feb. 3) was right on target. Yes, and Ronald Regan started the great disintegration of student aid, social services, welfare benefits and federal support for public housing and urban renewal which has continued to this day.

  • Lift the cap on Social Security taxes

    Lift the cap on Social Security taxes

    Reviewing the 2016 federal spending graphs that accompanied John Fritze's excellent article, it is obvious, at least to me, that 50 percent of the spending could be offset with one minimal tax increase ("What's in it for Md.," Feb. 3). However, no politician would have the intestinal fortitude...

  • A constructive idea for infrastructure, taxes

    A constructive idea for infrastructure, taxes

    As much as the $4 trillion budget President Barack Obama sent to Congress Monday is a highly political document giving his allies things to rally around and his opponents proposals about which to grouse, the spending plan succeeds at putting two issues of irrefutable importance front and center...

  • Mr. Obama's 529 brouhaha

    Mr. Obama's 529 brouhaha

    Rarely does a president flip-flop on an initiative presented in the State of the Union address as quickly as Barack Obama did this week. He reversed himself on 529 college savings plans on Tuesday, which was just seven days after his speech to the nation. Such a political miscalculation is instructive...

  • Free community college is a bad idea

    Free community college is a bad idea

    Free community college is another poorly thought idea from President Barack Obama ("Obama turns populist in State of the Union speech," Jan. 21). Am I against opening up the opportunity for many who cannot afford college? Absolutely not, but here is my concern. We already require K-12 education...

  • Obama's middle class 'help' is useless

    Obama's middle class 'help' is useless

    All we hear from President Barack Obama is that he is for the middle class. Well, I consider myself middle class. I am a retired homeowner, so let's see how this pans out for me.

  • Milking the rich is not a solution

    Milking the rich is not a solution

    I was saddened and disappointed to read The Sun's editorial regarding President Barack Obama's State of the Union address ("Mr. Obama's tax plan," Jan. 21).

  • Obama is a socialist, not a 'populist'

    Obama is a socialist, not a 'populist'

    President Barack Obama is a populist? How about cradle-to-grave socialist? There is no area of your life where government will not intrude, impose its will and dissipate any sense of individual responsibility you might have had left ("Obama turns populist in State of the Union speech," Jan. 21).