Why the Stock Market is Not "the Economy"

Why the Stock Market is Not "the Economy"

It happens every election season, and both sides do it- using the stock market as a political football, and spinning the state of the indices to their advantage. It’s very important to remember that the stock market is NOT “the economy,” despite what the politicians and the political pundits in their side try to tell us. 

If the stock market is up, as it is now, the party in power will try to convince you that Wall Street’s gains are good for Main Street. This is why President Donald Trump incessantly tweets about stock market gains, and gears his actions and ideals towards trying to do whatever satisfies the Dow Jones Industrial Average. His acolytes, despite the fact that many, if not most of them don’t even own any stock, will parrot this line repeatedly during these last three weeks up until the election.

stock money market crash

Buying and selling stock always has an element of risk, just like gambling. It’s like being a PA punter, someone who bets at the legal online casinos in Pennsylvania. The keystone state is really seeing a surge in their casino industry recently, especially since the state passed the legalization of sports betting. Of course, long before these new laws were enacted, you had a kind of legalized gambling available at various brokerage houses.

Charles Schwab, Edward Jones, TD Ameritrade and Wells Fargo…well, on some levels they’re not all that different from Bally’s, Rivers, Harrah’s and Caesar’s Palace. Just like the house usually wins, it’s the insiders who typically come out ahead when it comes to so-called “playing the market.” As the saying goes, position is 9/10 of the law, and the top of the economic food chain already has the cards, in this game, dealed out to their favor.

The top 1% of net worth Americans own 1/2 the total valuation of all stocks held by individual households. The top 10% own 88% of it market’s value. In fact, 47% of Americans don’t even own a single share of stock. 

sad-day-trader

Which again speaks to why the market fluctuations don’t mean anything at all to most of the country. Forget all the propaganda about “trickle down” economics and the “job creators.”

Employment statistics don’t relate to the stock market indices either. For instance, we lost 20.5 million jobs in April, the first full month of the shutdown economy. Meanwhile this month saw the S&P 500 reach a three year high. “The economy” itself is defined by general economic activity, often reflected by GDP or gross domestic product. The working definition of a recession is two consecutive quarters of negative economic growth as measured by GDP.

The NBER officially declared an end to the last economic expansion in February of 2020 as the U.S. fell into a recession amid the covid-19 pandemic. In addition to recession and expansion, there are two more economic phases to complete the cycle. 

Illustration of a graph where the figures suddenly fall through the floor

A slowdown is defined by a period in which GDP growth slows but does not actually decline. Finally, a recovery is generally characterized by a sustained period of improving business activity, following a recession and preluding an expansion. Again, none of these are defined by the DJIA numbers!

Paul M. Banks runs The Sports Bank, partnered with News NowBanks, the author of “No, I Can’t Get You Free Tickets: Lessons Learned From a Life in the Sports Media Industry,” has regularly appeared in WGNSports Illustrated, Chicago Tribune and SB Nation. Follow him on Twitter and Instagram.

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Filed under: Current Events

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