Why is the U.S. stock market doing well despite the recent U.S. economic downturn?

By Nicola Sargeant AAA
A:

The <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" /?>U.S. economy is one of the largest and most important economies of the world. With the continual growth of its GDP, the U.S. economy continues to overshadow the rest of the world. The main reason for the recent economic downturn is increased government spending. Government spending has been on the rise and is at an all time high, with much of the capital flowing toward war efforts. The upsurge in spending has led to a soaring budget deficit, which creates the impression that the economy will inevitably weaken, if this practice is sustained in the long run. Regardless of the excessive spending, the U.S. economy is still considered strong compared to the rest of the world.

Inflation is another economic factor that has kept investors on edge, as they are worried that this will result in large declines in wealth. Boosting interest rates is a common way to battle rising inflation levels, but increasing the interest rate can also have consequences. Many worry that the slow economic growth and interest rate hikes will result in a massive slowdown in the U.S. economy. The cost of energy, clothing and travel has risen substantially in the last few months triggering consumers to save their money and refrain from investing in anything that may be considered too high of a risk.

The U.S. economy has been expanding over the past several years, but the pressures from the fiscal deficit and currency account balances has caused somewhat of a panic. Despite these uncertainties, it appears that consumers still find the U.S.stock market attractive and see the potential for growth among many of its businesses. The wide spread confidence about the products and companies in the U.S. have therefore helped maintain the potency of the U.S. market.

Overall, the state of the U.S. economy can have an effect on the performance of the U.S. stock markets, but there are still other factors that contribute to it. Based on the actions of many investors, it appears that there is still a strong belief that participating in the U.S. stock market will bring about valuable gains.

For further reading, see The Stock Market: A Look Back, Recession: What Does It Mean To Investors?, Curbing The Effects Of Inflation.

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