U.Va. Tipsheet: Why Is the U.S. Stock Market Performing So Well?

The Dow Jones Industrial Average hit a record high Thursday. Is this performance odd given that the federal government’s forced spending cuts are now a reality? Is the surge due to other world markets, Europe and Asia for example, not rebounding quickly? And what can those with a 401(k) or extra cash to invest expect in the weeks and months ahead?

The following University of Virginia experts can comment:

David Leblang, J. Wilson Newman Professor of Governance and chair of the Woodrow Wilson Department of Politics in the College of Arts & Sciences and professor of politics and public policy in the Batten School of Leadership and Public Policy, says:

“Financial markets do best during periods of divided government – or gridlock – because financial market participants do not have to worry about irrational policy enactments that may alter fiscal or monetary policy and/or the regulatory environment.”

Leblang, who notes that the run up in the stock market is entirely consistent with the conclusions reached in his 2006 Cambridge University Press book, “Pricing Politics: Democratic Politics and Financial Markets,” can be reached at 434-243-1574 and leblang@virginia.edu.

Herman Schwartz, politics professor and an expert on global political economy, says:

“The stock market is high because profits are high and have been rising as firms cut their wage bill and headcount while maintaining the same level of output. But soft demand in most world markets bodes ill for the market’s new highs.”

Schwartz can be reached at 434-227-0180 (mobile), 434-924-7818 (office), schwartz@virginia.edu.

Robert Webb, Paul Tudor Jones II Professor of Commerce in the McIntire School of Commerce, is an expert in trading, futures and other derivative securities and markets, and market microstructure. His current research includes analyzing how differences in market structure – or the way financial markets are organized – affect the behavior of financial market prices. He is also interested in how traders make decisions and how “noise” (i.e., non-informational factors) affects financial markets. Webb is the editor of the Journal of Futures Markets, a leading academic journal focusing on derivative securities and markets. He is the author of “Trading Catalysts: How Events Move Markets and Create Trading Opportunities” (FT Press, 2007).

Webb can be reached at 434-924-7570 and riw4j@virginia.edu.

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