The differences in growth between the stock market and the economy

Stacey Vanek Smith May 3, 2011
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Traders work on the floor of the New York Stock Exchange in New York City. Mario Tama/Getty Images

The differences in growth between the stock market and the economy

Stacey Vanek Smith May 3, 2011
Traders work on the floor of the New York Stock Exchange in New York City. Mario Tama/Getty Images
HTML EMBED:
COPY

STEVE CHIOTAKIS: Since the beginning of the year, the Dow Jones Industrial Average is up more than 10 percent. The S&P 500? Nine percent. But everyone seems to be focusing on the negatives of the economy.

My colleague, Stacey Vanek Smith, asked Fortune magazine’s Allan Sloan to differentiate the stock market from the rest of the American economy.


Smith: Well it seems like a lot of bad news out there: we’ve got high gas prices, some really unimpressive growth numbers, and the Fed is going to put the brakes on that huge bond-buying stimulus. But you’ve got some good news for us?

Sloan: Yeah. The good news is anybody who owns U.S. stocks has been making tons and tons of money. The only question is: Is it going to keep going on this way, or is the stock market getting more like the economy, or will the economy get more like the stock market?

Smith: Well Allan, we always hear that the market isn’t the same thing as the economy, of course. But the exuberance in the market does really seem especially disconnected from reality right now.

Sloan: You’re right. The stock market is a stock market and it’s driven by a whole lot of things, including momentum, fear. The economy is a much more rational thing, and it tends to move up and down much more slowly than the stock market. This time, though, the stock market going up, at least for a while, has been good for the economy because it’s added something like $9 trillion to the value of U.S. stockholdings, some of which presumably has made its way into the economy because people are taking some of that money and spending it.

Smith: Well, if the markets are doing so well, that would make people feel better about the economy and where it’s headed. Could the markets potentially shock us into a recovery?

Sloan: It could help. If you take people from the Fed out, get them drunk, I think they would tell you that they consider the rise in stock prices since they started buying bonds — that’s one of the things they point to as a triumph. And that wealth, even though it’s on paper, is clearly one of the things that’s helping improve the economy.

Smith: Senior editor-at-large for Fortune Magazine, Allan Sloan. Allan, thank you.

Sloan: You’re welcome Stacey.

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