"Wise men are instructed in reason men of less understanding by experience; the most unknowing learn by necessity. Wise men do in the beginning what fools in the end." ~ Anonymous
Trying to gauge where the economy is headed is almost always a waste of time; other than pouring over seams of data and losing a large dose of time, you will be none the wiser. If this activity were indeed useful then almost all Economists would be millionaires; sadly, they are not. They are usually working for large multi-million or billion dollar corporations, who can afford to hire them to come out with these silly scenarios that they do not even believe in; it is not by coincidence that economics is referred to as the "dismal science."
Most successful businesses do not waste time trying to figure where the economy is headed; they are looking at what they have to do to improve their business. In today's age of hot money, there are two options on the table. Work hard and try to produce a better product or come out with something new that will replace an older product or service and offer it at a better price. The second option, borrow large sums of money and buy back your shares and magically improve your EPS, without doing anything extra. A large number of corporations are focussing on the second option as it is a very easy for corporate officers to reap to great bonuses without doing anything.
Naysayers would rant of a list of negative developments, some of which are listed below; but despite these developments the market has continued to soar higher.
The current economic recovery is the weakest on record since 1949; so what. How is this data supposed to help you in terms of investing in the market? It cannot because it tells you nothing. The economic recovery has been weak for years on hand and yet each year the Dow trends higher. If this data were relevant and investors paid attention to it, then the market should have crashed and should have been putting a series of lower lows.
The dollar is weakening; wait a second were not experts claiming that a strong dollar was bad for the economy and how did that argument work out? So why would anyone pay attention to this nonsense? In reality, the dollar is still much stronger than it was back in 2010. There is no such thing as a strong dollar or strong Euro; it is all relative as the world is looked in a competitive currency war. In this war, there is no option but to devalue or die.
Weak Economic Growth; another useless static that has no bearing on market direction; if it did the markets should have crashed already; instead it is trending higher. This data can be revised upwards and next month growth rates could come in higher than expected. All the data is manipulated, so based on how the manipulators feel, it can be twisted to create a rosy or dire picture. The only two things that matter are emotions and price action. The crowd is still extremely bearish in this crowd and price action is positive. Translations, markets will experience corrections ranging from mild to wild, but these pullbacks should be treated as buying opportunities.
We could also use data albeit manipulated data, to support a bullish picture. For example, wages are rising, unemployment has dropped, lower inflation, etc. The data used is twisted at best, so the picture they provide has to be taken with a barrel of salt.
Economic Growth (GDP) and Market performance not related especially in the era of "hot money."
The last eight years are a perfect example. On its best day, this economy can be compared to a plane flying with one engine; the second one is not working. The plane needs both for optimal performance, but it can still continue operating with one. Mass psychology clearly illustrates that markets top when the masses are Euphoric; how did the housing bubble end. It did not end on a note of panic but on a note of euphoria.
Don't waste time pouring over useless economic data; all the data is twisted, so your conclusion will be flawed as it will be based on faulty data. Focus on the emotion and trend (price action); the trend is always your friend. What investors are interested is in earnings and EPS has been improving even though in many instances the technique being used to boost them borders on fraud (increasing earnings through massive share buyback programs), earnings are still growing. Furthermore, the market does not seem to care about what method is employed to improve EPS; for if it did, the market would not be trading next to all-time new high territory.
"Success is just a matter of luck, all you need to do is ask a failure. History may be written by academics, but it's rarely created by them." ~ Anonymous