October 28, 2024
There seems to be a disconnect between Wall Street and Main Street.
Of course, that’s nothing new. But why is it happening now?
Well, the stock market seems unstoppable. Major indices set new all-time highs despite deepening signs of recession, out of control deficit spending, and another assassination attempt on former President Donald Trump.
Clearly, stocks are resilient. Their continued strong performance is another sign of how in this inflationary economy, bonds and cash are not safe. Stocks are the only game in town.
But stocks are expensive by nearly every measure.
A Bank of America analysis shows that the S&P 500 is above long-term historical averages in 19 out of 20 key valuation metrics. Also, today’s market capitalization divided by gross domestic product, which is Warren Buffett’s favorite parameter, is higher than at any point since data has been kept starting in 1964 (nearly 2.5 times the average). Lastly, the Schiller PE, which measures a stock’s price relative to the company’s earnings per share, is double its long-term average.
But then over on Main Street, eating out is becoming a luxury for many Americans. As the wealthy shelter their assets from inflation in the stock market, the average American is getting wiped out. Wages, cash savings, and standards of living are all being inflated away.
The National Restaurant Association’s Restaurant Performance Index tracks the health of U.S. restaurants via same store sales, traffic, labor, and capital spending. The index declined 1.3% in July, turning in its 10th consecutive month under 100 (i.e., contraction). Only the 2008 Great Financial Crisis and the 2020 COVID-19 lockdown have seen similar performance in this index.
On one hand, the rich get richer. On the other, people can’t afford a burger. Welcome to America in 2024.