The stock market is the great discounting mechanism. There is no disputing that fact. Markets are forward-looking instruments and discounting future activity and numbers. With millions of participants each day with a pulse on the stock market action we can understand why the market is such an accurate indicator.
Our minds don't often think out into the future. We train ourselves to think about the current day. It make sense too, with so much uncertainty in the future and little evidence to rely upon (unless you have a crystal ball). The ones who can think ahead are most likely to be rewarded. Let's consider the most recent economic data, going back a few months. There is no dispute the manufacturing, housing, retail and transportation numbers have been ugly. These important segments portray a very poor condition in critical areas of the economy.
But the way I see it, the stock market already discounted this economic data months ago! Let's harken back to shakier times, like in May this year. The stock market was wobbly, and probably 'seeing' some bad data on the horizon. The forecast was correct, as four to six months later the data has been poor.
So, with the stock market hitting all time highs now and rising just about every single day, what's the message? It should be clear as a bell: economic data some four to six months out is going to be strong. Yet, I realize there is no certainty with this forecast, and a fly in the ointment could appear out of nowhere. That could change everything, as it did late in 2018.
All things being equal, don't be surprised when you hear analysts and forecasters raising their GDP and earnings estimates for early 2020. While that may seem courageous, we have the stock market telling it is likely to be a strong start to 2020. It is the most accurate tool we have for predicting the economy's performance, so I'll take accurate anytime.