“The mind is its own place and in itself can make a heaven of hell or a hell of heaven.” — John Milton

The “misery index” is climbing and yet, we’re in the midst of an economic boom. Many investors are wondering: are we in heaven or hell?

The concept of a misery index was initially created by economist Arthur Okun in the 1960s, which he named the Economic Discomfort Index. Several independent iterations of Okun’s brainchild have since emerged.

Every month, the Bureau of Labor Statistics releases its own U.S. Misery Index. The government’s index is an attempt to gauge the economic well-being of the average citizen. It’s calculated by adding the seasonally adjusted unemployment rate to the annual inflation rate. Here’s the latest reading:

Some of that misery has crept into stocks lately. The equity markets tumbled Wednesday, after the latest consumer price index data showed that inflation ran hot in October. The major U.S. stock indices fell as follows: the Dow Jones Industrial Average -240.04 (-0.66%); the S&P 500 -38.54 (-0.82%); the tech-heavy NASDAQ -263.84 (-1.66%); and the small-cap Russell 2000 -37.71 (-1.55%).

Momentum stocks have taken it on the chin lately, because rising inflation and interest rates diminish the value of future earnings. But in pre-market futures trading Thursday, the four U.S. indices were poised to rebound, especially tech shares, as investors sought to buy on the dips. Bullishness (with an undercurrent of apprehension) lives on.

Consumer sentiment turns grim…

It’s not just the misery index. The widely followed University of Michigan consumer sentiment index has slid to levels not seen since the nadir of the pandemic (see chart).

Rising consumer inflation, pain at the gasoline pump, and empty shelves due to supply chain disruptions account for much of the gloominess. And yet, on many fronts, the news has been good.

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Coronavirus infections and deaths are declining; the economic recovery remains on track; jobs growth has been robust; wages are rising at the fastest pace in years; and despite recent pullbacks the stock market hovers at all-time highs and sits on healthy year-to-date returns.

Another tailwind for the economy and stocks is President Biden’s $1.2 trillion infrastructure package, which passed both chambers of Congress. Biden is scheduled to sign the bill into law on Monday.

In addition to addressing America’s pressing infrastructure needs, the bill will provide long-term fiscal stimulus and lift the shares of stocks in the industrial, materials, and construction sectors.

And yet, in a nationwide Gallup poll taken in October, 68% of respondents said they thought economic conditions in the U.S. were getting worse. Unease is certainly warranted these days, as the world continues to cope with the vestiges of the pandemic. But that sentiment is at odds with a lot of the genuinely positive news about the economy.

Negative reporting about the economy on partisan news channels can account for at least part of the disconnect. Pessimism is being fueled by a steady drumbeat, night after night, about how the economy is going to hell in a handbasket. This carping is contradicted by the hard data, but it’s easy to sway the uninformed.

That said, a visit to your local gas station or retail store would show that high prices and shortages are real. Many economists, including those at the Federal Reserve, argue that those problems are transitory. The bulls on Wall Street agree, but if we get another hot inflation report, that optimism could quickly turn to fear. The economy is improving and the bull market probably has further to run, but stay cautious.

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John Persinos is the editorial director of Investing Daily. To subscribe to John’s video channel, follow this link.