The Stock Market is up, but is the Economy Actually Doing Well?

It’s now August in the year 2020. The most recent government figures estimate US unemployment rates at 10.2%. Early-stage mortgage delinquencies are steadily rising and are expected to worsen with the end of the CARES Act. Q2 leveraged loan defaults rose to levels not seen since the Great Recession. Why are we being told that the economy is doing great?

July has been, in all regards, a successful month for the stock market. Even with the still ongoing pandemic, the S&P 500 is in positive territory for the year, a feat which many would have doubted was possible mere months ago. Media and politicians alike have praised this growth as an indication that the American economic recovery is imminent and that current policy has proven more than effective. Despite this, nearly every other barometer of economic stability indicates otherwise. It is time for Americans to stop treating the stock market as a monolithic signal of economic prosperity.

The assumption that the stock market is a good indication of financial prospects for the average American is severely flawed. It is estimated that roughly half of American households do not hold any investment in the market. Of the remaining half that do, the vast majority of stock held only belongs to the wealthiest 10% of Americans. Thus, it is important to consider that over half of Americans will not experience any direct effects from market fluctuations, whether positive or negative. For the average household, access to quality education, good-paying jobs, and affordable healthcare are far more important routes to economic prosperity.

It should be noted that market fluctuations can affect the job market and working-class salaries. However, the stock market’s influence on the general well-being of the economy is less significant than many believe it to be. The stock market represents corporate profit and expected gains, but what benefits corporate profits may not be good for the overall economy. For instance, a company choosing to downsize in order to cut costs may lead to increasing profits for the enterprise. While the market and the shareholders of the company would see short term financial gain, the laid off employees place strain on the economy by reducing the demand for goods and services. In this scenario, the 10% of the population with a significant stake in the market see some capital gain, but the other 90% of the population suffer to due decreased demand for goods and services and a more competitive job market. As the pandemic has continued, nearly every sector of industry has experienced substantial furloughs and layoffs. This begs the question as to why so many continue to claim that the economy is recovering despite a steadily shrinking job market and the loss of income for millions of households.

The rising number of mortgage delinquencies and loan defaults across the US indicates that although the stock market is performing well, it is not an accurate barometer for the general well-being of the US economy. It is unrealistic to expect that as millions of Americans descend into unemployment and debt, the economy will continue to function as it had before the pandemic. Without access to a healthy job market and steady income, the demand for goods and services will decrease and with it, the economic prospects of working-class Americans.

In an uncertain and unprecedented time like the present, it is vital that representatives support informed and well thought out policy choices. Educated decisions are necessary to ensure that financial opportunity and prosperity remain accessible to the future generations. As such, it is time for the American public to come to understand that the stock market is not the primary indicator of economic health but rather one of many. By changing the way we think about economic and fiscal policy, we can make more informed decisions that will benefit us today, and our children tomorrow.

As only 10% of the population holds major stakes in the stock market, it does not make economic sense to prioritize it as the most important metric of economic success. Rather, politicians and voters alike should refocus attention to areas that truly matter to most citizens’ economic prospects such as good jobs, high quality public education, and affordable healthcare.

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Quintin is an International Affairs Major at CU Boulder. He is also an avid traveler, brewer, and political activist.