Both bonds and stocks posted gains in May. A slight decline in interest rates combined with another month’s worth of income payments caused the overall U.S. bond market to rise by 1.7%. Major categories of stocks rose 3-5% for the month as well-known benchmarks, including the MSCI All Country World Index, continue to pursue all-time highs. Despite reasonably good returns from diversified portfolios so far this year, however, it is striking that so many Americans believe that the stock market is down from last year. The list of misbeliefs weighing on the American psyche, unfortunately, does not end there.
A recent Harris poll found, for example, that about half of Americans believe the economy is shrinking. This could not be further from the truth. In the first quarter of 2024, the gross domestic product (GDP) grew at a 1.6% annualized rate. That is lower than the prior readings of 3.4% and 4.9%, but that does not make the recent run of GDP growth any less extraordinary. Inflation-adjusted GDP is ten percent larger today than at the end of 2020. Not only are we not in a recession, but the economy continues to expand. According to that same Harris poll, about 70% of Americans believe that inflation continues to rapidly increase. Inflation peaked in June of 2022 at 9.1%, but it has come down significantly since then. The last reading showed inflation hovering around 3.4%. That is still too high for the Federal Reserve’s liking, but much lower than even two years ago.
While inflation is significantly down, it is still high enough that many Americans are experiencing strain. But if Americans feel a strain from inflation, wouldn’t they also celebrate the availability of jobs? Unfortunately, about half of Americans believe that the unemployment rate is at a 50-year high at a time when the U.S. labor market has become the envy of the world. In truth, the unemployment rate is very near a 50-year low and the economy continues to add jobs every month.
Economic data doesn’t just look good in the U.S. Economists have become more bullish on the rest of 2024, both here and abroad. Recent updates from both the International Monetary Fund and the Organization for Economic Co-operation and Development both predict global GDP will rise by an inflation-adjusted 3.2% this year with similar economic growth through 2025 as well. In another reflection of that economic optimism, a recent survey update from the World Economic Forum now shows that only 17% of respondents expect a weaker global economy this year, a big improvement from the previous month where some weakening was predicted by over half of the survey participants.
All told, there seems to be a disconnect between the state of the economy and how people feel about it. Some have even called the phenomenon a “vibecession”, a paradox between hard data and sentiment. Given the significant amount of new positive data, we are hopeful the mood will begin to improve.