You’ve probably seen some headlines and some tweets saying that because the DOW is
up, the economy is doing great or at some points in the last couple of months, the opposite
of that.
But you've probably also seen that due to the pandemic, we’ve reached truly historic
levels of unemployment … and yet comparatively the stock market seems to be doing not too
bad these days.
So what gives?
You’re watching FutureNow, stories about the future of tech and society.
As the title of the video says, the stock market is not the economy.
And I definitely can’t change the title of this video now if the algorithm hates it.
But you’ve probably heard that phrase thrown around a bunch, but you may be wondering,
then why does the media report the ups and down of the market so closely and make broad
statements about how the country is doing financially based on it?
Well, to understand what it isn’t, we should probably first be clear about what the stock
market actually does represent.
And as a disclaimer, I’m not an economist or a financial expert, so I'm going to talk
about this stuff in a pretty surface-level way.
Put simply, the stock market represents all the buying and selling of shares in companies
and the places in which that buying and selling happens.
It’s not efficient to track every single stock in the stock market, so usually when
people are talking about changes in the stock market, they’re talking about changes in
an index.
An index focuses on a particular group of companies to represent the stock market as
a whole or to represent how a particular industry is doing.
Companies put shares of their company up for sale through an exchange, like the New York
Stock Exchange.
If you buy shares of a company, you basically own a piece of that company.
Generally speaking, when a company is doing well, the value of that share goes up and
when a company is doing poorly, the value of the shares go down.
So basically the price of shares change depending on how much people are willing to pay for
it.
So, really just supply and demand.
There are analysts that look at what's going on in the world and in companies and make
predictions based on that to see how it’s going to affect the stock prices and that
tends to actually drive changes in the stock prices.This could be anything from a new corporate
tax policy and how it's going to harm or benefit a company (let’s be honest probably benefit)
to whether or not the CEO just got caught doing some terrible thing.
Or you know whether there's a global pandemic happening.
And occasionally, whether the products and services of a company are actually any good.
It’s very easy based on all this to think that if the stock market, that is the perceived
value of groups of companies, is doing well, then the economy must also be doing well.
But the truth is that the economy has way way more factors going on.
It's every product being produced, bought, and sold, it’s the wages of workers, it’s
employment numbers, its taxes, and on and on.
And yet knowing all this, I can still relate to this video from Graham Stephan.
What's up you guys?
It's Graham here.
So the other morning it was really like any other, I woke up around 6 AM, I went to the
kitchen, I got myself some coffee, I sat in front of my computer, I took a sip of said
coffee.
And then I literally spit it back out when I saw that the unemployment numbers saw a
3,000% jump with 6.6 million people claiming unemployment.
And of course the stock market reacts on such a devastating day like you'd expect it to
... by going up in price by 2.28%.
Like I can't be the only one who finds that very odd, right?
Right.
And if you watch Graham’s videos, you already know what to do, wait for it ... obliterate
the like button for the YouTube algorithm if you haven’t done that already.
I've always wanted to say that.
Anyway, so let’s take a look at why millions of people suddenly filing for unemployment
might not affect the stock market like you’d expect it to.
About half of US households own some stocks, usually through a retirement fund like a 401(k),
but the vast majority of stocks – 84% of all stocks – are owned by the richest 10%
of Americans.
In fact, a whole 40% of household stock holdings are owned by the top 1% of Americans, that’s
people with a net worth of over $10 million.
So you could say that the stock market represents the economic state of the richest Americans,
but it by no means represents the economy as a whole.
And that's the fundamental problem with using the stock market as a compass for how the
economy as a whole is doing.
At a moment when millions of people have lost their jobs, more than at any point in American
history, including the Great Recession and the Great Depression, the stock market is
essentially at an all-time record high.
The stock market has fallen, but it's basically already recovering.
The average worker isn't really affected by the performance of the stock market, unless
they’re just about to retire and therefore retrieve funds from their retirement fund.
What should be more worrisome to the average worker is that as the stock market has achieved
record high after record high over the last decade, wage growth has barely kept up with
inflation over the last several decades.
Especially for workers who are now deemed “essential” who by and large receive minimum wage.
So most of us don’t really need to pay attention to the headlines about the stock market, but
if you are in the top percent, please check out my Patreon page.
I think I may need more stuff on this wall.
It's a little bit blank right now.
Wait for it, obliterate the YouTube algorithm for the like button if you haven't done that already.