The Coronavirus Crisis: It Took a Global Pandemic to Expose the Stock Market as a “Mirage”

Despite Donald Trump making it central to his presidency, the success of the stock market bears no connection to the lives of nearly 90% of American citizens, says CJ Werleman.

The share price for US electric car manufacturer Tesla spiked 10% when it reached $798.75 in Monday’s trading on the technology-related NASDAQ index, representing a market capitalisation of nearly $150 billion, despite having being downgraded last week by the Bank of America because of “valuation concerns” and furloughing half of its workers at its north American headquarters in Santa Clara due to the COVID-19 pandemic.

It’s almost impossible to find a better example of how a single company’s share valuation is totally unrelated to the realities of the real economy during the Coronavirus crisis than Tesla, given that the stock is trading significantly higher than it was the day the US recorded its tenth COVID-19 related death on 3 March.

Since then, more than 26 million Americans have lost their jobs, with economist after economist forecasting a more than 30% contraction in the economy for the second quarter and others warning of Great Depression-level conditions for 2021 and beyond. One would think that these headwinds, coupled with record low gasoline prices, would send an electric car manufacturer’s share price – which is meant to reflect potential for future earnings – downwards, but this hasn’t been the case.

Moreover, the overall stock market valuation has climbed 25% from its mid-March low to reach 24,000 points on the Dow Jones Index. In other words, the stock market is booming at the same time a record number of businesses are being shuttered and a record number of Americans are filing claims for unemployment benefits.

If the COVID-19 pandemic has taught us anything, it is that it’s time we stop using the stock market as a measurement for anything other than the rate the rich are getting even richer. Its relationship to our real lives is no more accurate than your daily astrological reading, given that the wealthiest 10% own 85% of stocks. 

This, according to Jessica Schieder, a federal tax policy fellow at the Institute on Taxation and Economic Policy, “means that the stock market and stock prices can be disproportionately influenced by a much smaller subset of the population and disproportionately influenced by the fortunes and alternative investment options of that smaller slice,” she told Marketplace, a non-profit news organisation aiming to raise the ‘economic intelligence’ of the country.

“Another way in which the stock market and the economy are not synonymous is that you can have, you know, workers’ wages really stagnating or growing only marginally as compared to the increases that we’ve seen in the stock market.”

US President Donald Trump, however, has tied his political fate directly to the fortune of the stock market. He has tweeted about it more than 140 times since taking office, often with inflated and imaginary numbers to bolster his bid for re-election in November. He boasts of its “record” level numbers at each of his campaign rallies.

But, here’s the thing. Were the stock market to have any relationship with the real economy, then Trump would never have been elected President in the first place. Instead, voters would have rewarded Barack Obama’s successor, Hillary Clinton, given that the stock market almost tripled in value during his two terms.

Trump owes his 2016 victory to the fact that economic gains were felt almost exclusively on Wall Street and not Main Street during the 2009 to 2017 period. In fact, American wages have remained stagnant for almost four decades, with today’s real wage average having about equal purchasing power to that of the 1970s. “What wage gains there have been have mostly flowed to the highest-paid tier of workers,” according to the Pew Research Centre.

This is the direct result of three decades of neoliberal ‘trickle-down’ economics; the monopolisation, privatisation and deregulation of industry; and the destruction of labour protection laws. Today, 50 million Americans live in abject poverty, while 400 individuals own more than half of the nation’s wealth. 

Certainly, there is widening income inequality in all corners of the world but, on this, the US remains an outlier, with the top 20% of income earners making 16.7 times what the bottom 20% makes – but the stock market continues to soar upwards.

Not even a global pandemic will deter the upward trajectory of the Dow Jones, S&P500 and Nasdaq listed stocks. It will matter not that food insecurity levels in the US will be akin to those of Tanzania and Indonesia, and it will matter little that it might take a generation for the real economy to return to its pre-COVID-19 level. The value of the stock market reflects only the wealth of the wealthiest 10% of Americans, who have the resources to capitalise on the fact that the Federal Government will always be there to bail-out Dow Jones and Nasdaq-listed companies with one economic ‘stimulus’ package after another – like the Trump administration is doing now and the Bush and Obama administrations did before it.

“In reality, America’s stock market wealth was always a mirage, one which we now see dissolving in front of us,” observes journalist Jon Schwarz in The Intercept. “It’s dangerous for us to hope it will reappear, because it’s a distraction from the real world that we have to focus on more than ever.”

If the stock market is a “mirage” bearing no connection to the lives of nearly 90% of the country, then the media should report its indexes in the same way it does the daily value of yachts, Rolex watches and waterfront mansions: it doesn’t.

Reporting the “mirage” not only diverts attention away from the real problems in the real economy, but also allows political leaders like Trump to claim success where there is none – thus stymieing efforts to address them.