Is the Soaring Stock Market a Good Sign or a Warning of Our Financial Vulnerability?

Is the Soaring Stock Market a Good Sign or a Warning of Our Financial Vulnerability?

The reality is that just looking at the stock market as the index of America’s economic performance is not remotely a reflection of the strength of our economy. Like most national statistics – even as the Trump administration is attempting to eliminate statistical reporting that suggests his economic policies (mostly his assumptions about tax cuts and tariffs) are completely wrong – they are built on averages. Example: take 9 people who earn $50,000 and year and one who earns $1,000,000, and the average earnings in that pool equal $145,000. The average looks great, but it hardly reflects the earnings of 90% of that pool. In short, earnings and wealth from the top ten percent of Americans so distorts the national averages that such “average” numbers are virtually worthless in determining national economic well-being or consumer confidence.

The Gross Domestic Product (GDP) is one of those misleading numbers. As millionaires become billionaires, billionaires move to being trillionaires, these numbers hardly reflect that, in inflation adjusted dollars, those at the bottom are either stagnating or losing economic ground and those in the middle are mostly just hanging on. Rising consumer costs absorb a vastly larger percentage of lower and moderate income than the percentage of income of the rich. After all, if you are fighting higher costs, that seem to absorb that mythical “increase in average wages,” you are not particularly likely to build your stock portfolio as your available discretionary income (if you even have any) contracts.

As Statista (see above chart) noted last summer, “While equity investing is widely considered a good thing – after all it gives people the opportunity to participate in economic growth – it has the tendency to increase wealth inequality, as lower-income groups are much less likely to invest in the stock market. According to Gallup, 87 percent of U.S. adults with a household income of $100,000 or higher own stocks. Among those with a household income of less than $30,000 stock ownership falls to just 25 percent. And because the wealthy tend to have larger portfolios than lower-income investors, it can be assumed that the real distribution of stock market gains is even more extreme than that.”

According to CNN (September 29th), stock ownership represented under 15% of all Americans in 1980, but today 46% of American households own stock. That 87% of that 46% are in the top ten percent of earners should tell you all you need to know about those numbers. Further, that 44% of 18-29 year olds have some form of equity investment is equally misleading, because “crypto” is part of that number.

Since consumer spending accounts for almost 70% of all US economic activity, the Trump administration is quick to point out that this segment of the economy remains robust, but even that number is profoundly misleading. As Bloomberg (August 16th) points out, citing Moody’s Analytics chief economist Mark Zandi (looking at data from the Federal reserve), consumers in the top 10% of the income distribution were behind 49.2% of total consumer spending in the second quarter, the highest level in data going back to 1989, rising from 48.5% in the first quarter and is well above the roughly 35% level of the early 1990s. Simply put, a millionaire couldn’t care less if eggs cost $10 a dozen or $10 per egg!

Another misleading number is who spends how much for what. Older generations are more likely to live in their own houses where mortgages are fixed (or the home is paid off) and for whom housing affordability and paying off student loans are hardly their primary economic barriers. But as the September 25th Yahoo! Finance points out: “The past five years have seen large swings in spending share, with younger households driving the gains—Millennials and adult Gen Z now command 32% of [household spends], an 8-point increase from 2020, while Boomers+ have seen a nearly 10-point drop in the same timeframe.” What they don’t tell you: younger generations are more likely to face higher costs than older ones. If you speak with Gen Z, you will quickly discover that for most, home ownership remains an impossible dream… and rents are soaring.

The labor marketplace is also rife with misleading statistics, even though the negative trend lines which Donald Trump hates (he fired the head of the Bureau of Labor Statistics) still continue to get worse, especially for those entering the job market. As Greg Iacurci, writing for the August 18th CNBC, explains why Gen Z is getting slammed at double or more the unemployment rate reported as the national average: “The so-called great resignation has become the ‘great stay.’ But experts say workers aren’t just staying — they’re ‘job hugging.’…Job hugging is the act of holding onto a job ‘for dear life,’ consultants at Korn Ferry, an organizational consulting firm, wrote [in early August].

“The rate at which workers are voluntarily leaving their jobs — known as the quits rate — has hovered around 2% since the start of the year, according to data from the U.S. Labor Department’s Job Openings and Labor Turnover Survey. Outside of the initial days of the Covid-19 pandemic, levels haven’t been that consistently low since early 2016… The quits rate is a barometer of workers’ perceptions of the broader labor market, said Laura Ullrich, director of economic research in North America at the Indeed Hiring Lab. In this case, they may be nervous about getting another job or aren’t enthusiastic about their ability to find one, she said.

“The current clinging is a stark contrast from the historic rate of job-hopping that workers exhibited in 2021 and 2022, but experts say it makes sense given current labor market trends… The share of jobseekers who are ‘not confident at all’ that there are ‘plenty of jobs’ available has increased steadily, to 38% in the second quarter from about 26% three years earlier, according to a quarterly poll by ZipRecruiter… ‘There is this stagnation in the labor market, where the hires, quits and layoff rates are low,’ said Ullrich. ‘There’s just not a lot of movement at all.’” The sinking consumer confidence and the dearth of job openings really impact Gen Z more than any other generation.

As we have seen from a wildly gyrating US stock market, rising and falling on every Trump economic announcement, stock market performance is not the best descriptor for the health of US economy. Yet with such a disproportionate share of US wealth invested in that market – vs real estate or debt instruments – also tells you that a significant downward market correction would tank many of the other numbers I have described above, which are much more accurate reflections of economic well-being.

Most sophisticated investors are worried that AI shares are wildly overpriced and are wary of the next tariff announcement from the Trump administration. There’s just too much money invested in stocks. The good numbers behind the seemingly steady jobs market, share prices, consumer spending and GDP growth tend to fall apart even with the most simplistic analysis… and if you missed that analysis, please reread this blog.

I’m Peter Dekom, and the general instability, the political schism that is fracturing the nation, create a backdrop for American economics that is anything but reassuring.