Millions of Americans Won’t Feel the Stock Market Boom
The booming US stock market is the wrong yardstick for measuring Main Street’s post-pandemic recovery.
But that doesn’t stop President Donald Trump from repeatedly citing Wall Street’s V-bounce as proof that most Americans are doing well again..
«Shares belong to everyone», – said Donald Trump on Tuesday in the program on ABC channel. «Look, we are doing amazing in the stock market, which is good for everyone, but people who are not rich own stocks and they have 401 (k) stocks».
Just over half (52%) of American families have some level of investment in the market, mostly through 401k and other retirement accounts, according to the Pew Research Center. Only 14% of households invest directly in the market.
«Treating the stock market as a barometer of how the middle class is doing is completely wrong – and very misleading», – told CNN Business Edward Wolff, New York University professor of stock ownership and inequality.
Trump argued that the sharp rebound in the stock market helps more than «big people».
«It affects everyone, it affects the person who owns $ 10,000 in IBM or any other company», – Trump said during the broadcast.
But wealthy Americans have a much better chance in the stock market. This means that when stocks rise or fall, it disproportionately affects the richest families..
As of the first quarter of 2020, the richest 10% of American families owned 87% of all stocks and mutual funds, according to the Federal Reserve. This is above 82% in 2009, in which the last bull market began.
According to Wolf’s study, the middle class, defined as households ranging from 20% to 80% of scale level of public welfare, owned only 6.6% of shares outstanding.
«Stock market performance has nothing to do with the economic experience of the vast majority of Americans, especially the middle class.», – said Wolf. «Most Americans don’t actually have a large share of the stock market».
The stock market is not an economy anyway, and he never appeared to her.
S&The P 500 is not an indication of Main Street. It represents the fortune of some of the world’s largest companies with the most resources to tackle the crisis..
Corporate America can continue to make tons of money even when the small restaurants and hardware stores on Main Street go bankrupt. The struggles of smaller companies could increase the market share of Home Depot (HD) and the owner of Olive Garden Darden Restaurants (DRI), each of which is in the S&P 500.
Sometimes the stock market can feel completely disconnected from the fundamentals of the real economy..
For example, today the index S&P 500 is near record highs as US unemployment remains high and bankruptcy filings are on the rise.
This discrepancy is in part due to the unprecedented actions of the Federal Reserve. By cutting interest rates to zero and promising to keep them at that level for a long time, the Fed is forcing investors to bet for shares.
Investors also tend to anticipate economic recovery long before Main Street senses..
Regardless of catalyst, Wall Street’s rapid recovery offers significant benefits.
The fact that the index S&The P 500 soared more than 50% after bottoming out on March 23, instilling confidence among CEOs (C-Suite). And that confidence can inspire an increase in the number of employees and research and enterprise spending that fuel the growth of the real economy..
Likewise, consumers, especially those with significant reserves of funds, can also be guided by market conditions. While a market crash could keep Americans on the run, headlines about record-breaking stock prices could do the opposite. More confident consumers may want to spend extra money on iPhones, home renovations, or vacations. And there is real economic benefit to this..
However, stocks are a particularly poor indicator of the financial health of average Americans, especially racial minorities..
According to the Fed, black families own just 1.6% of stocks and mutual funds. Families of Spanish descent owned the same share. By comparison, according to the Fed, white households control a staggering 92% of stocks and mutual funds..
There is also a deep education divide.
According to the Federal Reserve, Americans without college degrees own only 5.4% of stocks and mutual funds. This is well below the nearly 17% observed in 1989..
All of this means that the stock market boom is exacerbating inequality, which may have helped fuel unrest in the United States. in recent months.
«This widens the gap between the upper and the middle groups. It exacerbates inequalities in wealth», – said Wolf.
Trump is touting record stock market performance, but who benefits?
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