08/27/2026
Stock Market Insights
By Dr. Richard Baker, AIF®
Why Is the U.S. Economy So Strong Despite Inflation and Debt?
A recent viral video showed someone putting weight on top of a single-filled plastic Coke bottle. It was amazing to watch them keep adding steel plate after steel plate, yet the Coke bottle kept holding up without collapsing, even up to 1,220 pounds. As the video continues, I wondered, “How long can this thing hold up?” Many are asking the same question about the market right now.
One of my clients was shocked at how much her account had grown this year and said, “How can it keep growing like this?” Investors around the country have been asking a similar question. How can the U.S. economy be this strong with continued inflation issues, the government hitting yet another debt milestone because of its out-of-control deficits, and geopolitical risks that never seem to go away? Yet somehow, despite all these speed bumps, the economy and stock markets are not only stable but thriving.
I see two reasons supporting the economy. First, the U.S. economy’s financial stress looks better than the rest of the world’s problems, and second, inflation continues to trend lower.
First, the U.S.’s problems look good compared to the rest of the world
My wife and I have a joke that if we ever feel bad about our life, we need to go mix it up with the Wal-Mart crowd for a while until we remember how good we have it. That is about how it is with the U.S. economy. The U.S. economy has the least financial stress compared to all developed and emerging markets. The Chicago Federal Reserve has a report called the National Financial Conditions Index (NFCI), which measures America's stocks, bank loans, money markets, and overall banking system. The report shows the U.S. economy at a negative number, indicating it is not currently experiencing financial stress. Although rates may feel high and loans hard to get, the report shows that interest rates and financial market conditions are favorable for businesses, families, and investors.
Second, Inflation Conditions Improved Since May
Although inflation is still above the Fed’s two percent target, it is trending down. Inflation looked on track in February until the Iran war shook up oil prices. Prices started inching up in March, April, and May but have since come down. Since May, every category (Import Prices,
Producer Prices, Services Price Index, Manufacturing Price Index, Global Supply Chain Pressure Index, Gasoline Prices: U.S. Average, Consumer Prices (CPI), CPI Excluding Housing, Rent Prices (CPI), and PCE Deflator) has fallen steadily month by month. If this continues, overall inflation could hit the Fed’s target in the first half of 2027.
For investors, these supports, along with continued strong demand for U.S. Treasuries, suggest underlying market conditions remain strong. Conditions are still favorable for economic activity and profit. That’s not to say there won’t be volatility, because there always is during the last half of a bull run. But all in all, it looks like there is still room for the bull to run. I have my accounts slightly more conservative than normal before midterm elections in case I see opportunities, but I see no reason to be in a defensive posture.
The plastic Coke bottle finally collapsed at 1,280 pounds, spraying Coca-Cola™ all over the floor. It was incredibly impressive, and no one watching believed it would withstand nearly that much weight, much like our current economy. The next time I am changing my tire I might use a case of Coke instead of a jack stand. The problem at my house is my wife is so addicted to Coca-Cola™, so it may be difficult finding full bottles.
Have a blessed week.
www.FerventWM.com
This article was written by humans for humans because AI doesn’t have this quality of sarcasm.
Securities and advisory services offered through LPL Financial, a registered investment advisor, Member FINRA/SIPC. Opinions voiced above are for general information only & not intended as specific advice or recommendations for any person. All performance cited is historical & is no guarantee of future results. All indices are unmanaged and may not be invested directly.
All investing involves risk, including loss of principal. No strategy assures success or protects against loss. The economic forecast outlined in this material may not develop as predicted & there can be no guarantee that strategies promoted will be successful. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
Source: 1.https://www.instagram.com/reels/DcDxOsri1vg/ 2. https://www.chicagofed.org/research/data/nfci/current-data
Fervent Wealth Management is a financial management and services entity in Springfield, Missouri.
