Divergence of the Stock Market’s upward drive with the flat manufacturing new orders for durable goods since 2012 possibly shows a shift in the nature of the economy, not necessarily a red flag. Historically durable goods, capital goods and goods manufacturing in general paralleled the overall economy, overall corporate profits and the stock market. Growing demand drove growing expansion and growing need for capital goods. We can say that this time it is different because FED easy money is distorting things, or we can say that (a) many goods are not produced here anymore, and (b) demand for durable goods is not growing because we already have enough, both as consumers and as businesses. Many durable goods last longer today, thus demand from failing older product is lower, and new housing units, offices, warehouses and factories are way behind past eras.
So, the growth in the stock market is being driven by something other than traditional physical goods manufacturing. The economy has changed, and so is the available cash to be spent.
S&P 500 vs Durable Goods Orders
Interactive chart comparing the S&P 500 index vs the level of manufacturers new orders for durable goods. The commitment to purchase costly and long-lived capital goods generally demonstrates via hard data how companies perceive their future business prospects and since 1992 has correlated well with the overall stock market as represented by the S&P 500.