Consumers may be worried about inflation and rising interest rates. But don’t tell that to Wall Street.
Stocks rose again Tuesday. It was a third-straight day of gains in what’s turning out to be a very bullish October. The Dow rose nearly 340 points, or 1.1%. The blue chips have now surged about 11% so far this month.
The S&P 500 and Nasdaq also moved higher Tuesday, rising 1.6% and 2.3% respectively.
So why is the market in rally mode even though consumers are worried about the rising price of just about everything? There are two key reasons.
For one, earnings are still pretty good. GM (GM), Coca-Cola (KO) and UPS (UPS) were a few of the iconic American companies to report strong profits and sales for the third quarter on Tuesday. So even though consumers and businesses may feel lousy every time they buy something and see how much it costs…they are still spending.
Until sagging consumer confidence and high inflation actually hurt demand, then corporate profits…and therefore stocks…may hold up.
There’s another factor at play, too, and one that’s a little more counterintuitive. The relentless drumbeat of scary economic news — housing slowdown headlines, inflation fears, geopolitical worries and recession jitters — may lead the Federal Reserve to pull back on its pace of interest rate hikes.
Investors are hoping that’s true because they are worried that overly aggressive rate increases by the central bank will send the economy into a deep and prolonged recession.