Slower growth, higher stock markets

As an investor, it is important to realise there is often a disconnect between the economy and stock market.

The CBI has warned this week that British economic growth is likely to slow down during the second half of this year.

This predicted slowdown is the result of easing business confidence and consumer spending.

They are forecasting quarterly growth will slow to 0.7% in the third quarter and 0.6% in the fourth quarter, following two consecutive quarters of 0.8% growth.

The CBI did however say they think the economic recovery is “on solid ground”.

Economic growth over the past year comfortably beat other G7 nations.

Despite this expected economic slowdown, corporate results and stock market valuations are looking pretty good right now.

The FTSE 100 index of leading UK company shares is having a nice time of it right now.

It is brushing the 6,900 level and setting a new 52-week high, requiring only a tiny nudge to reach its all time high of 6,930, reached previously on the eve of the Millennium.

If the FTSE does go above 6,900 and even above 7,000 points before the end of this year, with the economy slowing at the same time, it should act as a timely reminder that investors should not link the two too closely.

Markets can rise when economies are tanking, and vice-versa.

The two can act reasonably independently of each other, so don’t wait for positive economic news before investing; it will often be too late by this stage.

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