| Stock | Price | 52 Week Range | Marketcap | EPS | Dividend Yield | Chart (24H) | Sector | Employees | Last Updated |
|---|---|---|---|---|---|---|---|---|---|
| $158.74 | 371.83B | 6.51 | 2.65% | Consumer Defensive | 108,000 | 29 seconds ago | |||
| $149.63 | 204.85B | 5.49 | 3.77% | Consumer Defensive | 319,000 | 6 seconds ago |
The stock market has performed remarkably well since the last major correction in the summer of 2011, when the S&P 500 lost 17% of its value over the course of a month. Since then, the S&P 500 has soared by 46%, delivering substantial gains for investors, myself included. However, beneath this impressive market performance lies a dangerous illusion of economic prosperity—one that is increasingly disconnected from the underlying economy.
If you’ve been following the financial news, it’s hard to escape the constant speculation about when the Federal Reserve will begin tapering its monetary support for the economy. The mainstream financial media can’t seem to go a day without debating the timing and consequences of reducing the Fed’s monthly purchases of long-term treasuries and mortgage-backed securities. These actions have been critical in driving down borrowing costs and spurring employment.
What’s fueling this obsessive speculation? The media’s fixation on the daily, weekly, and monthly fluctuations in the stock market is a significant contributor. The pressure has become so intense that former Fed Chair Ben Bernanke was compelled to address the impact of monetary policy on asset prices in a speech titled “Monitoring the Financial System.”
“Of course, the Fed has always paid close attention to financial markets, for both regulatory and monetary policy purposes. However, in recent years, we have both greatly increased the resources we devote to monitoring and taken a more systematic and intensive approach, led by our Office of Financial Stability Policy and Research and drawing on substantial resources from across the Federal Reserve System. This monitoring informs the policy decisions of both the Federal Reserve Board and the Federal Open Market Committee as well as our work with other agencies.”
Ben Bernanke
Bernanke’s comments underline a critical issue: the stock market has gotten ahead of the real economy. The rise in corporate profitability is largely due to expense cuts, including significant layoffs, rather than genuine economic growth. This creates a fragile foundation for the current bull market.
Corporate America’s profitability has increasingly relied on drastic cost-cutting measures. Let’s consider Proctor & Gamble (PG) as an example. Last year, the company announced plans to lay off 10% of its workforce, a move designed to boost short-term profitability. Similarly, Pepsico (PEP) announced a 3% reduction in its headcount around the same time.
While these strategies can drive stock prices higher in the short term, they don’t reflect real economic growth. Instead, they highlight a concerning trend of prioritizing immediate financial performance over sustainable, long-term growth. This decoupling of stock prices from the broader economy is best exemplified by the labor market’s condition.
Editor's Note: Analysis and insight for this article were originally sourced from our friends at The Motley Fool
| Analyst Info | Value |
| Consensus Rating | Strong Buy |
| Average Price Target | $172.86 |
| Current Price | $166.61 |
| Potential Gain (Based on Price Target) | 3.75% |
| Number of Ratings | 31 |
The analyst consensus for Proctor & Gamble (PG) stock is a Strong Buy, with average price targets suggesting a relatively high potential gain. The stock has received positive ratings, indicating that analysts believe it will outperform the broader market over the next 12 to 18 months.
Has unemployment improved since the financial crisis? Yes, but the picture is more complex than it seems. The official unemployment rate has dropped from a peak of 10% in October of 2009 to 7.5%. While this appears to be a positive trend, it doesn’t tell the whole story. The average unemployment rate since the end of World War II is 5.8%, and the current rate of 7.5% is still significantly higher than this long-term average, just barely falling within the first standard deviation of typical fluctuations.
Moreover, the official unemployment rate significantly understates the real employment situation. It only considers individuals who are unemployed and actively looking for work. When we include those who have given up searching for jobs or are forced to work part-time due to economic conditions, the unemployment rate jumps to a staggering 13.9%.
| Consensus Rating | Average Price Target | Current Price | Potential Gain | Number of Ratings |
| OUTPERFORM | $182.17 | $166.28 | 9.55% | 23 |
| Moderate Buy | $185.88 | $166.38 | 11.72% | 17 |
| Moderate Buy | $185.27 | $166.28 | 11.14% | 14 |
Analysts generally have a positive outlook for PepsiCo, reflecting their confidence in the company’s future performance. The consensus suggests that investors should consider buying PepsiCo stock, with the average price target indicating a potential gain of around 11-12%. The number of buy ratings (8) outweighs the number of hold ratings (6), further supporting the moderate buy consensus.
Some might argue that it’s not the Federal Reserve’s job to ensure people have jobs. However, under the Federal Reserve Act of 1913, the central bank is legally obliged to “maintain long run growth of the monetary and credit aggregates commensurate with the economy’s long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.”
This means that the Fed does have a responsibility to consider employment in its policies. The ongoing emphasis on inflating asset prices appears to be at odds with this mandate, underscoring the need for a realignment of priorities. In the absence of substantial fiscal stimulus, monetary policy remains the primary tool to combat high unemployment.
As we revisit the central argument, it’s evident that the current bull market may be creating a dangerous illusion of economic prosperity. The gains in stock prices, driven primarily by cost-cutting measures and accommodative monetary policy, do not reflect genuine economic health. Instead, they mask underlying weaknesses that could pose significant risks to both investors and the broader economy.
This is a call to action for intelligent investors: critically evaluate the companies you invest in. Look beyond surface-level stock performance and scrutinize the underlying economic fundamentals. By doing so, you can navigate the complexities of today’s market with the insight and acumen that sets successful investors apart.
Disclosure and Author’s Position
For transparency and integrity, it’s worth noting that the author, John Maxfield, holds no positions in the stocks mentioned. The Motley Fool recommends and owns shares of Pepsico and recommends Procter & Gamble.
The Bull Market’s Dangerous Illusion: Hidden Risks and Misleading Gains presents an essential perspective on the disparities between market performance and economic reality, urging readers to remain vigilant and insightful in their investment strategies.