by From Dean Baker The stock market enjoys a mythological place not only among mainstream media types, but also among many progressives. For some reason this measure of expected future corporate profits is taken as a measure of economic well-being. The fact that the media obsesses over the stock market hardly needs to be mentioned. If there is one item about the economy that we can be sure will be repeated every day, it is the movement in the Dow or the S&P 500. And, needless to say, an upward movement is good news and a downward movement is bad news. But the view that the stock market is telling us something about the well-being of the economy goes far beyond just ill-informed media types. In the lead up to the 2016 election, Justin Wolfers, a University of Michigan economics professor,
Topics:
Dean Baker considers the following as important: Uncategorized
This could be interesting, too:
Merijn T. Knibbe writes ´Fryslan boppe´. An in-depth inspirational analysis of work rewarded with the 2024 Riksbank prize in economic sciences.
Peter Radford writes AJR, Nobel, and prompt engineering
Lars Pålsson Syll writes Central bank independence — a convenient illusion
Eric Kramer writes What if Trump wins?
from Dean Baker
The stock market enjoys a mythological place not only among mainstream media types, but also among many progressives. For some reason this measure of expected future corporate profits is taken as a measure of economic well-being.
The fact that the media obsesses over the stock market hardly needs to be mentioned. If there is one item about the economy that we can be sure will be repeated every day, it is the movement in the Dow or the S&P 500. And, needless to say, an upward movement is good news and a downward movement is bad news.
But the view that the stock market is telling us something about the well-being of the economy goes far beyond just ill-informed media types. In the lead up to the 2016 election, Justin Wolfers, a University of Michigan economics professor, and a fellow at the Peterson Institute for International Economics, had several New York Times pieces arguing that the wise investors in the stock market recognized that Trump would be bad news for the country. He pointed to sharp declines in the market in response to events making a Trump win more likely.
The Wolfers hypothesis suffered a serious setback in the weeks and months immediately following the election. The S&P 500 was up more than 5 percent in the first month after Trump’s victory. It continued to rise throughout 2017, hitting a peak in January of 2018 that was more than a third higher than its value on the eve of the election.
Wolfers was far from the only one taking stock market movements as a measure of economic well-being under Trump. When the market slumped last fall, there were many Trump critics who seized on this as evidence of Trump’s failings as a manager of the economy.
This view that the stock market is a measure of economic well-being is bizarre, because it is so completely at odds with what the stock market is. The stock market is a measure of the expectations of future profits of companies that are listed in the exchange: full stop.