Recent talk of the current state of the stock market has led many to boast of the current state of the economy. But are these two aspects of American economic health synonymous? Despite the two often used in tandem with each other, it is worth a deeper analysis of both to see if current stock market trends are indicative of greater, overall economic health.
While it’s true that long-term stock market data should be analyzed closely when looking at the long-term data of the American economic system, research tends to show otherwise when it comes to the ebb and flow of stock market trends.
Not Everyone Invests
The first thing to remember is that not everyone is an investor. Certainly, long-term stock market data is crucial for rising capital, business’ investing, and individuals accumulating wealth, but the truth is, the erratic nature of the stock market is tied neither directly to current economic health nor to the well-being of the American individual. In fact, a 2015 study showed that over half of Americans have no capital invested in stocks. If your job is directly working with the stock market, then it is likely that you pay attention to the minutia of the ebb and the flow. But for the average American citizen, the true well-being of the economy rests first on fundamental economic data.
When looked at in the appropriate long-term manner, there is no denying the importance of stock market data. But throughout day to day, current stock market trends, the erratic nature of the stock market can be more noise than signal.
How to Understand the Stock Market Better
The stock market is a complex system where publicly-traded shares of companies are issued, bought and sold. To some, however, it is a dark and nebulous underground organization that is the black-tie equivalent of betting on horse races. But it’s actually not much like gambling at all. Investing is hardly a win-all/lose-all scenario unless you invest in a company that completely tanks. It’s better to understand investing in the stock market as a group of investors banking their financial, economic, and investing expertise against one another. While the stock market is certainly not the direct equivalent of gambling, it is not, as previously stated, the greatest overall indication of economic well-being, that is if viewed in too narrow of a timeframe.
In today’s volatile political landscape, the stock market is often used to win arguments for both sides of the U.S. political spectrum. But it’s important to remember that the rise and fall of the stock market within a two-month timeframe is simply not indicative of overall economic health.
If you are someone who is interested in investing, the stock market, or in gaining a greater understanding of the economy as a whole, it’s important to familiarize yourself with the fundamentals of economics, for the truth is not always as some posit.