{"id":8060,"date":"2025-09-07T14:32:11","date_gmt":"2025-09-07T14:32:11","guid":{"rendered":"https:\/\/www.newsbeep.com\/nz\/8060\/"},"modified":"2025-09-07T14:32:11","modified_gmt":"2025-09-07T14:32:11","slug":"4-sometimes-conflicting-ways-im-thinking-about-the-economy-%f0%9f%98%ac%f0%9f%98%9e%f0%9f%98%8e%f0%9f%99%83","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/nz\/8060\/","title":{"rendered":"4 sometimes-conflicting ways I\u2019m thinking about the economy \ud83d\ude2c\ud83d\ude1e\ud83d\ude0e\ud83d\ude43"},"content":{"rendered":"

\ud83d\udcc8The stock market rallied to all-time highs, with the S&P 500 setting an intraday high of 6,532.65 on Friday and a closing high of 6,502.08 on Thursday. The index is now up 10.2% year-to-date. For more on the market, read: 15 charts to consider with the stock market at record highs<\/a> \ud83d\udcca\ud83d\udcc8<\/p>\n

–<\/p>\n

Last year, I wrote about how there are four different ways your view of the economy<\/a> can be informed: hard economic data, soft economic data, the stock market, and your personal biases.<\/p>\n

The point is that it\u2019s possible to have what appear to be conflicting views of the economy, even though you\u2019re not disagreeing on the facts.<\/p>\n

Let me demonstrate by offering my views on the current state of the economy while wearing each of these four different hats<\/a>.<\/p>\n

Hard data is anything that reflects quantifiable and observable behavior \u2014 stuff that is actually happening. These include metrics such as employment and personal spending, which help us determine whether the economy is in expansion or recession<\/a>.<\/p>\n

From the perspective of hard data, I don\u2019t feel as great about the economy as I used to<\/a>.<\/p>\n

The hard data have cooled so much that we are arguably at an economic tipping point<\/a>. Job creation has fallen to near zero, personal consumption has plateaued, industrial production is going sideways, and capex order activity is off its high.<\/p>\n

Notably, the ratio of job openings per unemployed persons fell below 1:1 in July for the first time in over four years.<\/p>\n

\"\"<\/a>There are now fewer job openings than there are unemployed people. (Source: BLS via FRED<\/a>)<\/p>\n

While this ratio continues to suggest there are many jobs for the taking, the situation is nowhere near as robust as it was during the early stages of the current economic expansion.<\/p>\n

Economists often discuss the relationship between job openings and unemployment with the Beveridge curve<\/a>, which shows that declining job openings are correlated with rising unemployment.<\/p>\n

\u201cWe\u2019re operating along a segment of the Beveridge Curve where declines in excess labor demand, as proxied by falling job openings, will result in larger increases in the unemployment rate,\u201d Renaissance Macro\u2019s Neil Dutta wrote on Wednesday. \u201cNot good.\u201d<\/p>\n

I\u2019m not convinced that we are doomed to fall into recession. However, I think it is increasingly hard to argue that growth is destiny.<\/p>\n

For more, read: We’re at an economic tipping point<\/a> \u2696\ufe0f<\/p>\n

Soft data is generated through surveys of consumers and business operators expressing their opinions, feelings, and expectations about things like job security, financial health, inflation, future business activity, and labor quality. Popular reports capturing soft data include S&P Global\u2019s Purchasing Managers Index<\/a>, the NFIB\u2019s Small Business Optimism Index<\/a>, and the University of Michigan\u2019s Surveys of Consumers<\/a>.<\/p>\n

According to the ISM<\/a>, purchasing managers have said manufacturing activity has been contracting for six straight months<\/a>.<\/p>\n

Even though the unemployment rate remains very low at 4.3%, people don\u2019t feel great about the economy. Political polarization, social media, low-quality news organizations, and the proliferation of misinformation have all contributed to this disconnect between hard and soft data in recent years.<\/p>\n

The Wall Street Journal recently published the results of a survey, and it was bleak. From the article<\/a>:<\/p>\n

A new Wall Street Journal-NORC poll finds that the share of people who say they have a good chance of improving their standard of living fell to 25%, a record low in surveys dating to 1987. More than three-quarters said they lack confidence that life for the next generation will be better than their own, the poll found.<\/p>\n

Nearly 70% of people said they believe the American dream\u2014that if you work hard, you will get ahead\u2014no longer holds true or never did, the highest level in nearly 15 years of surveys.<\/p>\n

The fact that the hard data has been deteriorating in recent months hasn\u2019t helped any of this.<\/p>\n

If there\u2019s reason for optimism, it\u2019s the fact that the economy has continued to grow despite all this pessimism. Imagine how much the economy might boom if sentiment made a big move upward?<\/p>\n

In the short run, the hard and soft economic data can spark volatility in the stock market. Technical factors in the markets will also move prices in the near term. Pretty much anything you imagine can affect trader decisions and investor sentiment, which in turn affects the markets over short periods of time.<\/p>\n

But in the long run, the most important driver of stock prices is <\/a>earnings<\/a>.<\/p>\n

And the outlook for earnings continues to be up<\/a>.<\/p>\n

\"\"<\/a>The outlook for earnings continues to improve, helping stocks move higher. (Source: Truist)<\/p>\n

The bullish corporate earnings story is in stark contrast to the lackluster economic growth story.<\/p>\n

As Goldman Sachs analysts argued recently<\/a>, the companies in the stock market benefit from greater international exposure<\/a>, dollar depreciation<\/a>, and a tilt toward large tech companies.<\/p>\n

So while economic conditions may not be favorable for everyone, they\u2019ve at least been favorable for the large companies that make up the stock market.<\/p>\n

People can say whatever they want about how much stock prices have rallied in recent years, and how we may or may not be \u201cdue\u201d for a major downturn. But I\u2019d argue these calls lack merit if they don\u2019t address the fact that earnings have been going up and are expected to continue going up.<\/p>\n

For more on this, read: The stock market and the economy are diverging<\/a> \ud83d\udcca and What’s the bottom line?<\/a> \ud83d\udcdd<\/p>\n

Some people will do poorly in a strong economy. Some will thrive in a struggling economy.<\/p>\n

Your view on the economy will be affected by your personal circumstances.<\/p>\n

That said, I personally have mixed emotions.<\/p>\n

As the owner of TKer, I couldn\u2019t be more thrilled that the stock market has been rallying to new all-time highs. After all, TKer tells the story about how the stock market usually goes up<\/a>.<\/p>\n

But the rally has ironically been a bit bittersweet. Engagement on TKer has cooled, and the pace of subscriber growth has recently leveled off. This is not surprising. In my 19 years in financial publishing, one thing I\u2019ve learned is that reader interest is highest during market downturns and volatile periods. Meanwhile, when stock prices are trending higher \u2014 like they have been for most of the summer \u2014 fewer people are interested<\/a> in better understanding what drives the market.<\/p>\n

In other words, what\u2019s good for your portfolio in the near-term is less than great for the financial information business. And vice versa.<\/p>\n

So yeah, it bums me out to see that fewer people are subscribing and fewer subscribers are opening emails as the stock market sets new all-time highs.<\/p>\n

Of course, I would never wish there to be more market volatility.<\/p>\n

Fortunately, as a long-term investor in the stock market<\/a>, I\u2019m naturally hedged!<\/p>\n

Like I said, TKer tells the story of how the stock market usually goes up. It\u2019s a stock market newsletter.<\/p>\n

And while I\u2019ll continue to write about hard and soft economic data, and everything in between, it\u2019ll always be written from the perspective of investors in the stock market.<\/p>\n

–<\/p>\n

More from TKer:<\/p>\n

There were several notable data points and macroeconomic developments since our last review<\/a>:<\/p>\n

\ud83d\udcc9 Job creation is stalling. According to the BLS\u2019s Employment Situation<\/a> report released Friday, U.S. employers added just 22,000 jobs in August. Notably, the June tally was revised down to a loss of 13,000 jobs. It\u2019s a reminder that we\u2019re at an economic tipping point<\/a>.<\/p>\n

\"\"<\/a>(Source: BLS via FRED<\/a>)<\/p>\n

Total payroll employment is at a record 159.5 million jobs, up 7.2 million from the prepandemic high.<\/p>\n

\"\"<\/a>(Source: BLS via FRED<\/a>)<\/p>\n

The unemployment rate \u2014 that is, the number of workers who identify as unemployed as a percentage of the civilian labor force \u2014 rose to 4.3% during the month. While the metric continues to hover near 50-year lows, it is now also at its highest level since October 2021.<\/p>\n

\"\"<\/a>(Source: BLS via FRED<\/a>)<\/p>\n

While the major metrics continue to reflect modest job growth and low unemployment, the labor market isn\u2019t as hot as it used to be.<\/p>\n

For more on the labor market, read: We’re at an economic tipping point<\/a> \u2696\ufe0f and 9 once-hot economic charts that cooled<\/a> \ud83d\udcc9<\/p>\n

\ud83d\udcb8 Wage growth could be lower. Average hourly earnings rose by 0.27% month-over-month in August, down from the 0.33% pace in July. On a year-over-year basis, August\u2019s wages were up 3.7%.<\/p>\n

\"\"<\/a>(Source: BLS via FRED<\/a>)<\/p>\n

For more on why policymakers are watching wage growth, read: Revisiting the key chart to watch amid the Fed’s war on inflation<\/a> \ud83d\udcc8<\/p>\n

\ud83d\udcbc Job openings tick lower. According to the BLS\u2019s Job Openings and Labor Turnover Survey<\/a>, employers had 7.18 million job openings in July, down from 7.36 million in June.<\/p>\n

\"\"<\/a>(Source: BLS via FRED<\/a>)<\/p>\n

During the month, there were 7.24 million unemployed people \u2014 meaning there were 0.99 job openings per unemployed person. This continues to be one of the more obvious signs of excess demand for labor<\/a>. However, this metric has returned to prepandemic levels.<\/p>\n

\"\"<\/a>(Source: BLS via FRED<\/a>)<\/p>\n

For more on job openings, read: Were there really twice as many job openings as unemployed people?<\/a> \ud83e\udd28 and Revisiting the key chart to watch amid the Fed’s war on inflation<\/a> \ud83d\udcc8<\/p>\n

\ud83d\udc4d Layoffs remain depressed, hiring remains firm. Employers laid off 1.81 million people in July. While challenging for the people affected, this figure represents just 1.1% of total employment. This metric remains below prepandemic levels.<\/p>\n

\"\"<\/a>(Source: BLS via FRED<\/a>)<\/p>\n

For more on layoffs, read: Every macro layoffs discussion should start with this key metric<\/a> \ud83d\udcca<\/p>\n

Hiring activity continues to be much higher than layoff activity. During the month, employers hired 5.31 million people.<\/p>\n

\"\"<\/a>(Source: BLS via FRED<\/a>)<\/p>\n

That said, the hiring rate \u2014 the number of hires as a percentage of the employed workforce \u2014 has been trending lower, which could be a sign of trouble to come<\/a> in the labor market.<\/p>\n

\"\"<\/a>(Source: BLS via FRED<\/a>)<\/p>\n

For more on why this metric matters, read: The hiring situation<\/a> \ud83e\udde9<\/p>\n

\ud83e\udd14 People are quitting less. In July, 3.21 million workers quit their jobs. This represents 2.0% of the workforce. While the rate is above recent lows, it continues to trend below prepandemic levels.<\/p>\n

\"\"<\/a>(Source: BLS via FRED<\/a>)<\/p>\n

A low quits rate could mean a number of things: more people are satisfied with their job, workers have fewer outside job opportunities, wage growth is cooling, or productivity will improve as fewer people are entering new, unfamiliar roles.<\/p>\n

For more, read: Promising signs for productivity<\/a> \u2699\ufe0f<\/p>\n

\ud83d\udcaa Labor productivity increases. From the BLS<\/a>: \u201cNonfarm business sector labor productivity increased 3.3% in the second quarter of 2025 \u2026 as output increased 4.4% and hours worked increased 1.1%. (All quarterly percent changes in this release are seasonally adjusted annualized rates.) From the same quarter a year ago, nonfarm business sector labor productivity increased 1.5% in the second quarter of 2025.\u201d<\/p>\n

\ud83d\udcb0 Job switchers still get better pay. According to ADP<\/a>, which tracks private payrolls and employs a different methodology than the BLS, annual pay in August for people who changed jobs was up 7.1% from a year ago. For those who stayed at their job, pay was up 4.4%.<\/p>\n

For more on why policymakers are watching wage growth, read: Revisiting the key chart to watch amid the Fed’s war on inflation<\/a> \ud83d\udcc8<\/p>\n

\ud83d\udcbc New unemployment claims tick higher, total ongoing claims remain elevated. Initial claims for unemployment benefits<\/a> rose to 237,000 during the week ending Aug. 30, up from 229,000 the week prior. This metric remains at levels historically associated with economic growth.<\/p>\n

\"\"<\/a>(Source: DOL via FRED<\/a>)<\/p>\n

Insured unemployment, which captures those who continue to claim unemployment benefits, declined to 1.94 million during the week ending Aug. 23. This metric is near its highest level since November 2021.<\/p>\n

\"\"<\/a>(Source: DOL via FRED<\/a>)<\/p>\n

Low initial claims confirm that layoff activity remains low. Elevated continued claims confirm hiring activity is weakening. This dynamic warrants close attention, as it reflects a deteriorating labor market.<\/p>\n

For more context, read: The hiring situation<\/a> \ud83e\udde9 and The labor market is cooling<\/a> \ud83d\udcbc<\/p>\n

\ud83d\udcb3 Card spending data is holding up. From JPMorgan: \u201cAs of 29 Aug 2025, our Chase Consumer Card spending data (unadjusted) was 4.8% above the same day last year. Based on the Chase Consumer Card data through 29 Aug 2025, our estimate of the US Census August control measure of retail sales m\/m is 0.36%.\u201d<\/p>\n

\"\"<\/a>(Source: JPMorgan)<\/p>\n

From BofA: \u201cTotal card spending per HH was up 2.8% y\/y in the week ending Aug 30, according to BAC aggregated credit & debit card data. Some of the jump in total spending growth might be due to the timing of Labor Day relative to last year (9\/1\/25 vs 9\/2\/24). But y\/y spending growth for week ending in Sat pre-Labor Day was a solid 1.9% (ex of timing change), supporting a 3Q rebound.\u201d<\/p>\n

\"\"<\/a>(Source: BofA)<\/p>\n

For discussion on how sales may be inflated due to tariffs, read: A BIG economic question right now<\/a> \ud83e\udd14<\/p>\n

\ud83c\udfe0 Mortgage rates tick lower. According to Freddie Mac<\/a>, the average 30-year fixed-rate mortgage stood at 6.5%, down from 6.56% last week: \u201cMortgage rates continue to trend down, increasing optimism for new buyers and current owners alike. As rates continue to drop, the number of homeowners who have the opportunity to refinance is expanding. In fact, the share of market mortgage applications that were for a refinance reached nearly 47%, the highest since October.\u201d<\/p>\n

There are 147.9 million housing units<\/a> in the U.S., of which 86.1 million are owner-occupied<\/a> and about 39%<\/a> are mortgage-free<\/a>. Of those carrying mortgage debt, almost all have fixed-rate mortgages<\/a>, and most of those mortgages have rates that were locked in<\/a> before rates surged from 2021 lows. All of this is to say: Most homeowners are not particularly sensitive to the small weekly movements in home prices or mortgage rates.<\/p>\n

For more on mortgages and home prices, read: Why home prices and rents are creating all sorts of confusion about inflation<\/a> \ud83d\ude16<\/p>\n

\ud83d\udc4d Manufacturing activity surveys improve. From S&P Global\u2019s August U.S. Manufacturing PMI<\/a>: \u201cThe past three months have seen the strongest expansion of production since the first half of 2022, with the upturn gathering pace in August amid rising sales. Hiring also picked up again in August as factories took on more staff to meet an influx of new orders and an accumulation of uncompleted work for waiting customers.\u201d<\/p>\n

The ISM\u2019s August Manufacturing PMI<\/a> suggests the sector is in contraction. But the pace of contraction has improved from the prior month.<\/p>\n

\ud83d\udc4d Services activity surveys remain positive. From S&P Global\u2019s August U.S. Services PMI<\/a>: \u201cTogether with a robust manufacturing PMI reading, the surveys are consistent with the US economy growing at a solid 2.4% annualized rate in the third quarter. Fuller order books, reflecting a summer upturn in customer demand, has meanwhile encouraged service providers to take on additional staff in increasing numbers, accompanied by a return to hiring in the manufacturing sector. While low household confidence is reportedly keeping spending on consumer services relatively subdued, demand for financial services is showing especially strong growth amid improving financial market conditions.\u201d<\/p>\n

The ISM\u2019s August Services PMI<\/a> also signaled expansion in the sector.<\/p>\n

Keep in mind that during times of perceived stress, soft survey data tends to be more exaggerated than actual hard data.<\/p>\n

For more on this, read: What businesses do > what businesses say<\/a> \ud83d\ude4a<\/p>\n

\ud83d\udd28 Construction spending ticks lower. Construction spending<\/a> decreased 0.1% to an annual rate of $2.139 trillion in July.<\/p>\n

\ud83c\udfe2 Offices remain relatively empty. From Kastle Systems<\/a>: \u201cPeak day office occupancy was 61.2% on Tuesday last week, down nine tenths of a point from the previous week. Most cities experienced decreased occupancy throughout the week, as summer winds down. In New York, for example, peak day occupancy fell 2.8 points on Tuesday to 54.3%, more than 16 points lower than the post-pandemic record high set in July. Austin, however, peaked on Wednesday at 81.7%, the highest single-day office occupancy in any tracked city since the pandemic. The average low was 34.3% on Friday.\u201d<\/p>\n

For more on office occupancy, read: This stat about offices reminds us things are far from normal<\/a> \ud83c\udfe2<\/p>\n

\ud83d\udcc8 Near-term GDP growth estimates are tracking positively. The Atlanta Fed\u2019s GDPNow model<\/a> sees real GDP growth rising at a 3.0% rate in Q3.<\/p>\n

For more on GDP and the economy, read: 9 once-hot economic charts that cooled<\/a> \ud83d\udcc9 and We’re at an economic tipping point<\/a> \u2696\ufe0f<\/p>\n

\ud83d\udea8 The Trump administration\u2019s pursuit of tariffs<\/a> is disrupting global trade, with significant implications for the U.S. economy, corporate earnings, and the stock market. Until we get more clarity<\/a>, here\u2019s where things stand:<\/p>\n

Earnings look bullish: The long-term outlook for the stock market remains favorable, bolstered by expectations for years of earnings growth<\/a>. And earnings are the most important driver of stock prices<\/a>.<\/p>\n

Demand is positive: Demand for goods and services remains positive<\/a>, supported by healthy consumer and business balance sheets<\/a>. Job creation, although cooling<\/a>, also remains positive<\/a>, and the Federal Reserve \u2014 having resolved the inflation crisis<\/a> \u2014 shifted its focus toward supporting the labor market<\/a>.<\/p>\n

But growth is cooling: While the economy remains healthy, growth has normalized<\/a> from much hotter levels earlier in the cycle. The economy is less \u201ccoiled\u201d<\/a> these days as major tailwinds like excess job openings<\/a> and core capex orders<\/a> have faded. It has become harder to argue<\/a> that growth is destiny.<\/p>\n

Actions speak louder than words: We are in an odd period, given that the hard economic data decoupled from the soft sentiment-oriented data<\/a>. Consumer and business sentiment has been relatively poor, even as tangible consumer and business activity continues to grow and trend at record levels. From an investor\u2019s perspective, what matters<\/a> is that the hard economic data continues to hold up.<\/p>\n

Stocks are not the economy: There\u2019s a case to be made that the U.S. stock market could outperform the U.S. economy<\/a> in the near term, thanks largely to positive operating leverage<\/a>. Since the pandemic, companies have aggressively adjusted their cost structures. This came with strategic layoffs<\/a> and investment in new equipment<\/a>, including hardware powered by AI<\/a>. These moves are resulting in positive operating leverage<\/a>, which means a modest amount of sales growth \u2014 in the cooling economy \u2014 is translating to robust earnings growth<\/a>.<\/p>\n

Mind the ever-present risks: Of course, we should not get complacent. There will always be risks to worry about<\/a>, such as U.S. political uncertainty<\/a>, geopolitical turmoil<\/a>, energy price volatility<\/a>, and cyber attacks<\/a>. There are also the dreaded unknowns<\/a>. Any of these risks can flare up and spark short-term volatility in the markets.<\/p>\n

Investing is never a smooth ride: There\u2019s also the harsh reality that economic recessions<\/a> and bear markets<\/a> are developments that all long-term investors should expect<\/a> as they build wealth in the markets. Always keep your stock market seat belts fastened<\/a>.<\/p>\n

Think long-term: For now, there\u2019s no reason to believe there\u2019ll be a challenge that the economy and the markets won\u2019t be able to overcome<\/a> over time. The long game remains undefeated<\/a>, and it\u2019s a streak that long-term investors can expect to continue.<\/p>\n

For more on how the macro story is evolving, check out the previous review of the macro crosscurrents. \u00bb<\/a><\/p>\n

Here\u2019s a roundup of some of TKer\u2019s most talked-about paid and free newsletters about the stock market. All of the headlines are hyperlinked to the archived pieces.<\/p>\n

The stock market can be an intimidating place: It\u2019s real money on the line, there\u2019s an overwhelming amount of information, and people have lost fortunes in it very quickly. But it\u2019s also a place where thoughtful investors have long accumulated a lot of wealth. The primary difference between those two outlooks is related to misconceptions about the stock market that can lead people to make poor investment decisions.<\/p>\n

Passive investing is a concept usually associated with buying and holding a fund that tracks an index. And no passive investment strategy has attracted as much attention as buying an S&P 500 index fund. However, the S&P 500 \u2014 an index of 500 of the largest U.S. companies \u2014 is anything but a static set of 500 stocks.<\/p>\n

\"\"<\/a>(Source: S&P Dow Jones indices via TKer<\/a>)<\/p>\n

For investors, anything you can ever learn about a company matters only if it also tells you something about earnings. That\u2019s because long-term moves in a stock can ultimately be explained by the underlying company\u2019s earnings, expectations for earnings, and uncertainty about those expectations for earnings. Over time, the relationship between stock prices and earnings has a very tight statistical relationship.<\/p>\n

\"\"<\/a>(Source: Fidelity via TKer<\/a>)<\/p>\n

Investors should always be mentally prepared for some big sell-offs in the stock market. It\u2019s part of the deal when you invest in an asset class that is sensitive to the constant flow of good and bad news. Since 1950, the S&P 500 has seen an average annual max drawdown (i.e., the biggest intra-year sell-off) of 14%.<\/p>\n

\"\"<\/a>(Source: JPMorgan)<\/p>\n

Every recession in history was different. And the range of stock performance around them varied greatly. There are two things worth noting. First, recessions have always been accompanied by a significant drawdown in stock prices. Second, the stock market bottomed and inflected upward long before recessions ended.<\/p>\n

\"\"<\/a>(Source: Goldman Sachs via TKer<\/a>)<\/p>\n

Since 1928, the S&P 500 generated a positive total return more than 89% of the time over all five-year periods. Those are pretty good odds. When you extend the timeframe to 20 years, you\u2019ll see that there\u2019s never been a period where the S&P 500 didn\u2019t generate a positive return.<\/p>\n

While a strong dollar may be great news for Americans vacationing abroad and U.S. businesses importing goods from overseas, it\u2019s a headwind for multinational U.S.-based corporations doing business in non-U.S. markets.<\/p>\n

\"\"<\/a>(Source: FactSet via TKer<\/a>)<\/p>\n

The stock market sorta reflects the economy. But also, not really. The S&P 500 is more about the manufacture and sale of goods. U.S. GDP is more about providing services.<\/p>\n

\"\"<\/a>(Source: BlackRock via TKer<\/a>)<\/p>\n

\u2026you don’t want to buy them when earnings are great, because what are they doing when their earnings are great? They go out and expand capacity. Three or four years later, there’s overcapacity and they’re losing money. What about when they’re losing money? Well, then they\u2019ve stopped building capacity. So three or four years later, capacity will have shrunk and their profit margins will be way up. So, you always have to sort of imagine the world the way it’s going to be in 18 to 24 months as opposed to now. If you buy it now, you’re buying into every single fad every single moment. Whereas if you envision the future, you’re trying to imagine how that might be reflected differently in security prices.<\/p>\n

Some event will come out of left field, and the market will go down, or the market will go up. Volatility will occur. Markets will continue to have these ups and downs. \u2026 Basic corporate profits have grown about 8% a year historically. So, corporate profits double about every nine years. The stock market ought to double about every nine years\u2026 The next 500 points, the next 600 points \u2014 I don\u2019t know which way they\u2019ll go\u2026 They\u2019ll double again in eight or nine years after that. Because profits go up 8% a year, and stocks will follow. That’s all there is to it.<\/p>\n

Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaac\u2019s talents didn\u2019t extend to investing: He lost a bundle in the South Sea Bubble, explaining later, \u201cI can calculate the movement of the stars, but not the madness of men.\u201d If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole, returns decrease as motion increases.<\/p>\n

According to S&P Dow Jones Indices (SPDJI), 65% of U.S. large-cap equity fund managers underperformed the S&P 500 in 2024. As you stretch the time horizon, the numbers get even more dismal. Over a three-year period, 85% underperformed. Over a 10-year period, 90% underperformed. And over a 20-year period, 92% underperformed. This 2023 performance follows 14 consecutive years in which the majority of fund managers in this category have lagged the index.<\/p>\n

\"\"<\/a>(Source: SPDJI via TKer<\/a>)<\/p>\n

Even if you are a fund manager who generated industry-leading returns in one year, history says it\u2019s an almost insurmountable task to stay on top consistently in subsequent years. According to S&P Dow Jones Indices, just 4.21% of all U.S. equity funds in the top half of performance during the first year were able to remain in the top during the four subsequent years. Only 2.42% of U.S. large-cap funds remained in the top half<\/p>\n

SPDJI\u2019s report also considered fund performance relative to their benchmarks over the past three years. Of 738 U.S. large-cap equity funds tracked by SPDJI, 50.68% beat the S&P 500 in 2022. Just 5.08% beat the S&P in the two years ending 2023. And only 2.14% beat the index in the three years ending in 2024.<\/p>\n

\"\"<\/a> Very few funds consistently beat their benchmarks over extended periods. (Source: SPDJI via TKer<\/a>)<\/p>\n

Picking stocks in an attempt to beat market averages is an incredibly challenging and sometimes money-losing effort. Most professional stock pickers aren\u2019t able to do this consistently. One of the reasons for this is that most stocks don\u2019t deliver above-average returns. According to S&P Dow Jones Indices, only 24% of the stocks in the S&P 500 outperformed the average stock\u2019s return from 2000 to 2022. Over this period, the average return on an S&P 500 stock was 390%, while the median stock rose by just 93%.<\/p>\n

\"\"<\/a>(Source: SPDJI via TKer<\/a>)<\/p>\n","protected":false},"excerpt":{"rendered":"\ud83d\udcc8The stock market rallied to all-time highs, with the S&P 500 setting an intraday high of 6,532.65 on…\n","protected":false},"author":2,"featured_media":8061,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[12],"tags":[138,220,111,139,69],"class_list":{"0":"post-8060","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-markets","8":"tag-business","9":"tag-markets","10":"tag-new-zealand","11":"tag-newzealand","12":"tag-nz"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/8060","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/comments?post=8060"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/8060\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media\/8061"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media?parent=8060"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/categories?post=8060"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/tags?post=8060"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}