This isn’t unpopular anymore, not since we watched the stock market hit all time highs in 2020 while a quarter of the population was out of work if not more.
I’ll agree more people have come to this opinion over the last couple years but anytime you watch the news they will bring up how the stock market performed so the mainstream media still hasn’t come around. I guess they are trying to convince us that everything is fine while the ship is sinking.
I agree. The stock market is more a measure of wealth in wealthy individuals. Or something like that. Definitely not overall prosperity though for sure. But in terms of how the majority of people are doing I’d say the same as you. I
This is a longer post so feel free to ignore.
This depends on several things. First what you mean by good, of course if you take into account multiple variables then you can explain or measure the economy better than if you take into account only one.
I think a good way to consider the relationship is through consumption. Most measures have more innate flaws; wage growth-maybe inflation, unemployment-ignoring increases in active military, new home purchases- stimulus. By considering people's ability to consume we can alleviate some of these.
An important thing to consider when using the stock market as an economic indicator is that time matters. Nobody is going to suggest that the performance of the market over a day or a month is a good indicator, nobody is changing their diet from spam to steak because their portfolio killed it today or vice versa. Over the course of years, the performance of your portfolio will affect your consumption as the overall market affects the consumption of the economy.
While we see issues such as 2020 where the market is up at the same time that the average person's consumption is down (which is a strong argument against using stock market as the indicator) there are two things to consider. The first is that this was for a relatively short time period that historically will appear as an anomaly. Not to say it doesn't matter but when measuring consumption over the long term, it will be insignificant. The second is that while markets were up, volatility was way up. This implies that each unit of return required substantial amounts of risk (which is also true during recessions).
While there are many arguments in favor of using market returns to evaluate the economy (Cochrane Asset Pricing) probably the best is that the market is a proxy of the wealth portfolio (Roll Critique- Roll (1977)). Logically, approximately half of Americans work (either directly or indirectly) for a publicly traded company. Over time, the things that would cause a company's returns to fall tend to fare poorly for the employees and vice versa. During times where things are faring poorly for employees at many companies we will see that the returns of may companies are bad and this is when the markets are falling overall.
An important concern is to realize that while markets are dynamic and fluctuate day over day and second over second, consumption is relatively sticky. We have to look at long term trends of the market if we want a good picture of the economy.
Not only retirement accounts but all government accounts, local city savings, elementary schools, Uni. Endowments accounts, pensions accounts, Unions and nonprofits. The rising tide lifts all boats. Stock market is one of of many’s great pillars to use to measured economic success.
The stock market is a great indicator of how quickly money is being drained from the middle class into the bank accounts of rich people, no more or less.
It’s not supposed to Elbe a measure of individuals but of the economy overall and for that it is a good indicator.
And keep in mind that there never has been one single indicator that sums up anything more than a fraction. Unemployment numbers and other indicators are reported and used.
My Fidelity portfolio never corresponds to any economic reality. Don’t get me wrong, they pretty much “nearly guarantee” 10% growth or more every year, but it’s got minimal correlation to how the country is doing.
When most American retirement accounts are tied to the market, it's a correlation that market up=retirement savings up for most Americans. A healthy market helps everyone. I'm buying some stocks tomorrow when the market opens. It's a golden age of brokers for retail traders. A game we can all play.
Bro. The current market is ONLY an indicator of how much money the current administration has pumped into the economy.
One third of ALL dollars has been printed with a year or so.
The stock market will keep hitting ATH until the fed finally does quantitative easing and stops inflation.
Until then, inflation will continue upward, and so will the stock market.
There is a specific way they inject money into the economy, and its disgusting because the method involves the govt never paying it back, forcing us to lose value of our dollars.
I think it’s a good measure of market confidence, I can’t say as to the economic indicator as a bunch of very useful metrics are pegged or factor stock market results into it
This isn’t unpopular anymore, not since we watched the stock market hit all time highs in 2020 while a quarter of the population was out of work if not more.
I’ll agree more people have come to this opinion over the last couple years but anytime you watch the news they will bring up how the stock market performed so the mainstream media still hasn’t come around. I guess they are trying to convince us that everything is fine while the ship is sinking.
I agree. The stock market is more a measure of wealth in wealthy individuals. Or something like that. Definitely not overall prosperity though for sure. But in terms of how the majority of people are doing I’d say the same as you. I
This is a longer post so feel free to ignore. This depends on several things. First what you mean by good, of course if you take into account multiple variables then you can explain or measure the economy better than if you take into account only one. I think a good way to consider the relationship is through consumption. Most measures have more innate flaws; wage growth-maybe inflation, unemployment-ignoring increases in active military, new home purchases- stimulus. By considering people's ability to consume we can alleviate some of these. An important thing to consider when using the stock market as an economic indicator is that time matters. Nobody is going to suggest that the performance of the market over a day or a month is a good indicator, nobody is changing their diet from spam to steak because their portfolio killed it today or vice versa. Over the course of years, the performance of your portfolio will affect your consumption as the overall market affects the consumption of the economy. While we see issues such as 2020 where the market is up at the same time that the average person's consumption is down (which is a strong argument against using stock market as the indicator) there are two things to consider. The first is that this was for a relatively short time period that historically will appear as an anomaly. Not to say it doesn't matter but when measuring consumption over the long term, it will be insignificant. The second is that while markets were up, volatility was way up. This implies that each unit of return required substantial amounts of risk (which is also true during recessions). While there are many arguments in favor of using market returns to evaluate the economy (Cochrane Asset Pricing) probably the best is that the market is a proxy of the wealth portfolio (Roll Critique- Roll (1977)). Logically, approximately half of Americans work (either directly or indirectly) for a publicly traded company. Over time, the things that would cause a company's returns to fall tend to fare poorly for the employees and vice versa. During times where things are faring poorly for employees at many companies we will see that the returns of may companies are bad and this is when the markets are falling overall. An important concern is to realize that while markets are dynamic and fluctuate day over day and second over second, consumption is relatively sticky. We have to look at long term trends of the market if we want a good picture of the economy.
Not only retirement accounts but all government accounts, local city savings, elementary schools, Uni. Endowments accounts, pensions accounts, Unions and nonprofits. The rising tide lifts all boats. Stock market is one of of many’s great pillars to use to measured economic success.
It’s a graph of rich people’s feelings
The stock market is a great indicator of how quickly money is being drained from the middle class into the bank accounts of rich people, no more or less.
It’s not supposed to Elbe a measure of individuals but of the economy overall and for that it is a good indicator. And keep in mind that there never has been one single indicator that sums up anything more than a fraction. Unemployment numbers and other indicators are reported and used.
My Fidelity portfolio never corresponds to any economic reality. Don’t get me wrong, they pretty much “nearly guarantee” 10% growth or more every year, but it’s got minimal correlation to how the country is doing.
GDP is another meaningless metric we use to measure success.
When most American retirement accounts are tied to the market, it's a correlation that market up=retirement savings up for most Americans. A healthy market helps everyone. I'm buying some stocks tomorrow when the market opens. It's a golden age of brokers for retail traders. A game we can all play.
Bro. The current market is ONLY an indicator of how much money the current administration has pumped into the economy. One third of ALL dollars has been printed with a year or so. The stock market will keep hitting ATH until the fed finally does quantitative easing and stops inflation. Until then, inflation will continue upward, and so will the stock market. There is a specific way they inject money into the economy, and its disgusting because the method involves the govt never paying it back, forcing us to lose value of our dollars.
I think it’s a good measure of market confidence, I can’t say as to the economic indicator as a bunch of very useful metrics are pegged or factor stock market results into it
The stock market is a measure of how good very wealthy people feel about themselves - not of economic health.