NEW YORK - On Tuesday , the S&P 500 stock index hit a record high. The next day, Apple became the first US company in history to be valued at more than US$2 trillion . Donald Trump is, of course, touting the stock market as proof that the US economy has recovered from the coronavirus; too bad about those 173,000 dead Americans, but as he says,"It is what it is."
But how can there be such a disconnect between rising stocks and growing misery? Wall Street types, who do love their letter games, are talking about a"K-shaped recovery": rising stock valuations and individual wealth at the top, falling incomes and deepening pain at the bottom. But that's a description, not an explanation. What's going on?
What about stocks? The truth is that stock prices have never been closely tied to the state of the economy. As an old economists' joke has it, the market has predicted nine of the last five recessions. Furthermore, the profits people expect Apple to make years from now loom especially large because, after all, where else are they going to put their money? Yields on US government bonds, for example, are well below the expected rate of inflation.
Unfortunately, ordinary Americans get very little of their income from capital gains, and can't live on rosy projections about their future prospects. Telling your landlord not to worry about your current inability to pay rent, because you'll surely have a great job five years from now, will get you nowhere - or, more accurately, will get you kicked out of your apartment and put on the street.
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