Stock Markets Exposed

Is the stock market a good indicator of how the economy is doing?

I hear from many people that if the stock market is doing well that that necessarily means the economy is doing well overall. But with the recent increase in oil prices, stagnant wages, the mortgage/credit crisis, and a government with a lot of unfunded liabilities, I find this kind of hard to believe. Can anyone give some objective info on this question?

Public Comments

1. Yes, the stock market is considered a leading indicator. http://economics.about.com/cs/businesscycles/a/economic_ind.htm And yes, the economy, as measured by GDP, has been doing very well. Company earnings and consumer spending have been on the rise since 2002. The reason things seem so dismal is because the media always likes to report the bad news... but high gas prices hasn't stopped people from travelling/spending, the mortgage crisis only effects 5% of mortgages (directly), and the government has *always* had large liabilities.
2. its a matter of definition...in their mind a good economy = stock market is doing well and their investments doing well. (someone who places a lot of weight on the stock market or the entire weight is a selfish elitist type person who has no idea nor really cares what happens to other people) mine would to take the pulse of a country by looking at a broad array of indicators from unemployment rate, to inflation, housing market, bankruptcy filings, job growth, real salary decline/increase, netflow of jobs, illegal labor impact, budget deficits, trade deficits, energy prices, etc...... YOu have to look at the big picture....but actually if you ask americans in poll, they will usually give you a good idea of where the country is at...and such a poll right now would show that 70% of americans believe the country is headed in the wrong direction, and I would say that at least 60% of the respondents would say the economy is not doing good.
3. The stock market usually reflects what investors feel will be happening in the economy in about 3-6 months.
4. you bet ye it is, the best indicator.
5. The stock market is typically an exaggerated indicator of how well or how badly "most investors" believe the economy is GOING TO BE doing in the future, not a picture of where it actually is...