Santoli: Main Street fine as Wall Street struggles

Published Mon, May 9 20167:30 AM EDTUpdated Mon, May 9 201611:44 AM EDT

While Wall Street has been stalled for a year and a half, Main Street has been bustling. The Standard & Poor's 500 index is now at levels first reached near Thanksgiving 2014. Since then, 4.1 million new jobs have been created, average hourly earnings for American workers are up 3.9 percent, real personal spending has climbed 3.6 percent and consumer loans outstanding are 8.3 percent higher. The steady (if belated) improvement in fortunes for the typical U.S. household has come as corporate profits have slipped and investors who feast on them have struggled to muster enthusiasm over stocks. Corporate profits as a proportion of the total U.S. economy have ebbed from historic highs above 10 percent in late 2014 to 9 percent at the end of 2015. And how's this for a turnabout? Since the real economy started gaining ground on the corporate and financial sectors in late 2014, Goldman Sachs shares have shed 16 percent of their value and the compensation set aside per Goldman employee was down more than 12 percent. This Main Street over Wall Street theme didn't come entirely as a shock. Hints were spreading in late 2014 , and six months ago it still seemed a trend worth heeding. This broadening of economic benefits is a good thing, though it is helping to feed concerns about sluggish productivity growth in the economy, which can drag on real-income growth and corporate investment over the long term. Wells Capital Management strategist James Paulsen last week delved into this conundrum , musing that productivity might be underestimated in this cycle, perhaps due to the continued shift toward a services economy. But low-productivity growth does match with the broader perception that the economy is merely trudging along. Note: This is economists worrying over workers being paid too much for the amount they're producing. Read More Strategist's signal with perfect track record flashing 'buy' By now, the irony in all this should be obvious: If the worker and consumer have had it better lately, while corporate profits and financial markets have faltered, why is the political debate vibrating with economic discontent? Well, the last several quarters' employment and income gains have done little to close the gap in earnings and opportunity built over decades. But it's also true that the economic narrative of campaigns tends to lag the actual data trend significantly. The villainizing of bankers, overpaid CEOs, immigrants and foreign workers is straight out of the Occupy Wall Street and Tea Party Express movements that got rolling more than half a decade ago. Recall, too, that Bill Clinton won the White House in 1992 on the credo, "It's the economy, stupid," even as the economy was well on the recovery road after a brief recession. And he only won because independent Ross Perot took a slug of votes from George H.W. Bush with shrill warnings about the hazards of free trade — just ahead of the globalization-aided boom of the '90s. One simmering question now: How much will the uncomfortable, angry campaign conversation, animated by zero-sum economic assumptions, influence investor and consumer attitudes, even as rising labor costs pinch corporate profitability? Consumer confidence, as variously measured, is up moderately from levels of late 2014, about the time the fitful Wall Street to Main Street handoff was executed. But it has receded from this cycle's highs in early 2015. The weak performance of chain-retailer stocks shows most directly the interplay of a healthier but still-cautious consumer and the rising cost of labor. The SPDR S & P Retail ETF is down 7 percent since the broad market first reached today's level in November 2014. While some fast-food stocks have thrived, casual-dining bellwethers Brinker International and DinEquity are down 13-16 percent since the same point. Read More How to invest during a heated Trump-Clinton race The direct and lasting impact of elections on the stock market is generally overstated. But the constant focus on what's seen as structurally broken about the U.S. economy is doing nothing to help investors stay resolute amid the choppy tape this year. In the past five weeks, combined outflows from equity mutual fund and ETFs have exceeded $13 billion, according to the Investment Company Institute. Bond funds have pulled in $25 billion over the same stretch. This places the market where it has stood for a few quarters now: with equities fully valued, but offering dividend yields competitive with bonds. Growth is consistent, but at weak levels insufficient to broadly drive revenue gains. Federal Reserve "patience" is now consensus, offering support but no enthusiasm. The number of companies offering positive profit guidance exceeds the negative guides for the first time in seven quarters, but is this already priced into stocks? Was the rally since February too dependent on oil's surge and the revival of overly punished cyclical stocks? The CBOE S & P 500 Volatility Index dipped below 15 on Friday, perhaps suggesting that with the bulk of earnings done and the Fed on hold, identifiable catalysts are few. Investors are somewhere between anxious and confused as the S & P 500 undergoes either a rote pullback after a strong rally or a return into the sloppy middle of its long range. Their relative unease has acted as a buffer against rallies growing too stretched, helping to keep pullbacks from probing too deep. If markets are going to be stuck and most investors to be off balance, at least for now the Main Street economy is inching forward — even if few are talking much about it.

Scott Mlyn | CNBC

While Wall Street has been stalled for a year and a half, Main Street has been bustling.

The Standard & Poor's 500 index is now at levels first reached near Thanksgiving 2014. Since then, 4.1 million new jobs have been created, average hourly earnings for American workers are up 3.9 percent, real personal spending has climbed 3.6 percent and consumer loans outstanding are 8.3 percent higher.

The steady (if belated) improvement in fortunes for the typical U.S. household has come as corporate profits have slipped and investors who feast on them have struggled to muster enthusiasm over stocks.

Corporate profits as a proportion of the total U.S. economy have ebbed from historic highs above 10 percent in late 2014 to 9 percent at the end of 2015. And how's this for a turnabout? Since the real economy started gaining ground on the corporate and financial sectors in late 2014, Goldman Sachs shares have shed 16 percent of their value and the compensation set aside per Goldman employee was down more than 12 percent.

This Main Street over Wall Street theme didn't come entirely as a shock. Hints were spreading in late 2014, and six months ago it still seemed a trend worth heeding.