Stock Market Disconnected From Reality?

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Jan 31, 2006

Some excerpts:

....former Federal Reserve Chair Janet Yellen recently forcefully explained: "The stock market isn't the economy. The economy is production and jobs, and there are shortfalls in virtually every sector". Yet how has the stock market remained so resilient in the face of such a severe economic shock? In part, it's because of inequality. Stocks are overwhelmingly owned by the top 1 percent, which means speculation can continue even as more people lost their jobs at the onset of this recession than at any time since the Great Depression.

What's more, measures such as the Dow and S&P 500 reflect only the very largest U.S. companies, which can weather steep slumps in demand in a way that Main Street enterprises can't - while the relief packages Congress passed this spring were better at shielding large companies from economic harm than smaller ones. Given how troubling the underlying economic data are, the immunity of the markets can't continue (as we may be seeing this week).

When we compare the stock market to jobs data, the numbers are sobering, indeed. Spring's temporary job losses - caused at first by the shutdowns - are settling into a long-term pattern of economic malaise that could reduce low-income and middle-class families' income for years to come......

If the stock market doesn't reflect the health of our economy, what does it reflect? Most directly, it reflects the financial health of the richest among us. Overall, roughly 55 percent of Americans own stocks, according to Gallup, but ownership is heavily skewed toward the wealthy. According to Federal Reserve data, the top 1 percent. of U.S. households owns 52 percent of equities and mutual fund shares, and the top 10 percent owns 87 percent - which leaves the U.S. workers in the bottom 90 percent owning just 13 percent.

...... a subset of truly giant corporations are driving market gains. The S&P 500 gains have been driven by five companies: Apple, Amazon, Microsoft, Facebook and Google's parent company, Alphabet. These five represent more than one-fifth of the roughly $27 trillion in total market capitalization. of all companies in the S&P 500.

But even big companies need customers. When overall demand sinks, why wouldn't that be reflected in share prices? In part, the answer is that fiscal policies enacted by Congress, and monetary policies put in place by the Federal Reserve this spring have disproportionately benefited corporations.

Near-boundless support for U.S. financial markets, however, won't save the real economy from a continuing recession. While it's true that propping up asset values can stave off a financial crisis (for a while), it can't deliver the broad economic stimulus needed to bring unemployment figures down - let alone protect Main Street's businesses and workers.

Jerome Powell, chair of the Fed, has repeatedly said that his institution can't keep equity and debt assets propped up if the economy continues to deteriorate.............Amid all this, one thing remains clear: For Wall Street, too, there will be a reckoning.
Federal Reserve has been printing dump trucks full of money (trillions) and pouring it through the back door of the stock exchange to prop up the Dow. It makes the old Quantitative Easing look like chump change.

Board chairman said he is prepared to continue with an "unlimited amount" of this cash if necessary.

So yes, disconnected from reality.
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