Weak GDP growth, a shrinking labor force but a rising stock market?

The S&P 500 and the Dow are in very distinctive wedge patterns. But the Nasdaq Composite) has rallied to the top of its bullish trend channel. Stocks at the top of their trend channel are likely to retreat; this happened in the nasdaq composite from the highs in late February and early March down to the April, 13 low that touched the bullish trend line. The economy has been consistently weak since the end of the great recession. The labor force has shrunk as the potential workers that are not part of the work force has increased from 15 million to almost 16 million. Workers wage gains, five percent per year in 1998 has shrunk to two percent per year recently. That is below the level of inflation. This cash squeeze has hurt retail sales; growth in retail sales is almost 19% below the 1992 to 2007 baseline. A recent Harvard study reported that 70% of people in the U.S. had only $1,000 of savings or less. Is it any wonder that retail sales is suffering? But, how can the stock market keep on going up?

My table of stock-market sectors shows a devide between the Technology Group and the Cyclicals Group; stocks in both these groups are considered growth stocks. The Technology Group has exploded higher by 2.8% on huge increases in the Computer Software and Semiconductors Sectors while the Cyclicals Group shrank by 0.5%.
The stock market shoots higher making valuations ever higher and increasingly divorced from fundamentals. Here are 3-year cash flow results from my Transportation Sector that gained a high 3% since May 1.

 

Symbol Sales
DAL 1%
LUV 5%
CSX -5%
UPS 3%
UNP -6%
NSC -6%
FDX 7%
UAL -2%
CHRW 0%

 

The average sales was only -0.33.

Put in your name and email for our
free weekly stock newsletter

You'll get:

* Weekly Emailed Stock Market Analysis

* Trading Educational Tips - once or twice a week

email

name 

  • Every trader, no matter how good, has losses.

     

    The only ones that don’t are Ponzi schemes.

  • What kind of results will I get?

     

    You’ll get more wins than losses and average gains bigger than losses.

  • But, you need more than just good trades!

     

    Too much risk leads to disastrous losses.

    Geometrically increase your results with the correct use of risk.

  • How do I get started?

     

    Click subscribe (on the menu) and make a selection.

    Submit and you’re set to go once you receive a return email.