Can The Stock Market Save The Economy?

A friend of mine, someone completely outside of the Wall Street world, asked me this question a few days ago and in addition to being at an utter loss for the answer, I thought it was one of the more interesting questions one could ask right now.

My friend, we’ll call him Dirk (if only because I’ve always wanted a friend named Dirk), has been watching the massive rally in the stock market on TV and in the papers.  Every day, he tells me, he hears the same two things:

1.  Unemployment Skyrocketing

2.  US Stocks Skyrocketing

He cannot reconcile how these two things can happen concurrently and I’m sure he’s not alone.

Now, as even the most casual market participant knows, employment and jobless rates tend to be considered lagging indicators, meaning it’s not until things have improved for a few months or quarters that businesses have enough confidence to take on new employees.  Fine, let’s take that as accepted gospel for now.

So what will give businesses the confidence to hire and expand?  My friend is asking whether or not companies, large and small, will look to the stock market as their gauge?

Will they be emboldened strictly by the fact that capital can be raised, IPOs can come public and mergers seem to be happening again?

Will the asset price improvements that come along with S&P 500’s monster run bring business people back around to thinking about growth again?

I am not an economist (clearly!) and frankly, I cannot think of any historical precedent for an economy being revived by the stock market itself.  This would seem to me to be the ultimate case of the tail wagging the dog.  That said, most of what’s been done in Bailoutland has been squarely aimed at boosting (propping up) the stock market, so it wouldn’t amaze me if stocks ended up fixing the overall economy, if and when that actually takes place.

Right now, the greenest of green shoots appear to have ticker symbols, as stocks more than any other asset class or indicator are acting well.  It’s been drilled into all of our heads that stocks are anticipatory by at least 6 months, but even after a 6 month rally, every other piece of actual US economic data still seems to be disastrous (regardless of the easy comps, manipulation or spin).

This is what has both Dirk and myself curious about the stock market’s ability to lead, not just predict, a broader recovery.

Anyone got any thoughts on this possibility?

Tags: , , , , ,

This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

Wealthcast Media, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. For additional advertisement disclaimers see here:

Please see disclosures here.

What's been said:

Discussions found on the web
  1. 밤토끼시즌2 commented on Nov 19

    … [Trackback]

    […] Read More Info here on that Topic: […]

  2. Harold Jahn Canada commented on Nov 27

    … [Trackback]

    […] Read More on to that Topic: […]

  3. rbc sign in online commented on Dec 03

    … [Trackback]

    […] Find More Information here to that Topic: […]

  4. replicas rolex mens watch commented on Dec 08

    … [Trackback]

    […] Info to that Topic: […]

  5. DevOps Strategies commented on Jan 14

    … [Trackback]

    […] Read More here on that Topic: […]

  6. Thermador T24UW820LS manuals commented on Jan 22

    … [Trackback]

    […] Here you can find 21978 more Info to that Topic: […]

  7. Regression testing commented on Feb 07

    … [Trackback]

    […] Find More Information here to that Topic: […]