At its core, long-term investing is about financial predictions. Investors buy a company's stock today (or a mutual fund holding the stock) because they believe it will be worth more tomorrow. Profits will rise. New products will be introduced. Any number of forces can drive a stock _ and a stock market _ higher, but none are as powerful as hope.
The modern American investment markets are uniquely structured to encourage financial predictions. And since Election Day, the stock market is reflecting a pretty rosy picture for the U.S. economy to come. All three major stock indices _ the Dow Jones Industrial Average, the Nasdaq Composite and the S&P 500 _ hit new highs in the past week. That kind of price action demonstrates investors are confident profits will rise and inflation may increase.
In the week ahead, investors will square that with the economy they have now.
On Tuesday, the government will release its second estimate for third-quarter gross domestic product. This is the widest measure of the American economy and it was surprisingly stronger-than-anticipated when the first batch of incomplete data was reported a month ago. That report indicated the strongest quarterly GDP growth in two years. Investors hope the strength remains when more data is released in the coming week.
On Friday, the November jobs report will be released. Employment data has been positive, while the job reality for millions of Americans has been frustrating. The headline unemployment rate remains below 5 percent, while the total unemployed and underemployed rate remains close to twice that. There have been positive signs that paychecks are growing, though. Average hourly wages have finally been growing, providing millions of workers with a bump up in pay even as new job growth has been slowing in recent months.
Investors are optimistic by nature. They will be looking for new signs to hang their hope on.
