I am hearing too many people think the economy and the stock market correlate and go in the same direction, but it does not! The stock market and the economy have never been on the same page.
The S&P 500 has surged 45% since it bottomed on March 23rd and is just 5% lower than its record high from February 19th. Meanwhile, the U.S economy has an unemployment rate of 13.3%. Pre virus the unemployment rate was only 3.3%. a whole 10% increase and you’d think the market would be tanking hard but it isn’t!
The market right now is as strong as its been in the past years and its raging green. As an investor, I am concerned about this and leaving most of my cash on the side waiting for this bubble to burst.
“The stock market is a market where stocks, a type of investment that represents ownership in a company are traded,” said Jessica Schieder, a federal tax policy fellow at the Institute on Taxation and Economic Policy.
“The stock market is where people make bets on what’s going to happen in the economy.”
A stock market is a place where shares trade, then you have stock indexes, like the Nasdaq 100 the dow jones 30 and the S&P 500, which are slices of the market of the top 100, 30, and 500 companies.
Now, the economy is a sum of goods and services within the U.S its all of the things we produce as a country. We the people make up the economy through every wage level, every industry, every profession. Unlike the stock market.
“The richest Americans hold the lion’s share of the value in the stock market despite the fact that about half of households own some stock,” said Schieder.
The stock market and stock prices are influenced by such a small set of the population and is influenced by those with great wealth.
Workers’ wages and the economy do not grow at the same rate. Only marginally as compared to the increases that we’ve seen in the stock market.
In some cases, the stock market has affected the economy but that was about 90 years ago during the great depression. This rapid decline in the stock markets severely affected business and consumer confidence. It also caused banks to lose money. This crash was undoubtedly a factor in contributing to the length and severity of the Great depression it is worth pointing out that the stock market crash was due to the prospect of recession. In a way, the falling stock market and depression were closely linked. but this is not the case right now the market is booming while the Trump Economy is suffering.
The stock market is not the economy; dont get it twisted, and the economy is most certainly not the stock market. The two are definitely related to one and other but do not correlate or move in the same way.