Musings on the Stock Market as a Predictor of the Economy and Politics

By Rudy Barnes, Jr., June 7, 2024

The stock market is made up of megacorporations that manufacture and set prices on most consumer goods.  The price of stock, or equities, is based on corporate profits that have surged with inflation; but inflation is a danger to a healthy economy.  That makes a booming stock market a sign of inflation and a danger to a healthy economy.

There are two economies in America: one for the rich (the stock market) and one for the rest.  The stock market crashed in March 2020 at the beginning of the pandemic, but it quickly recovered, and the Dow has since achieved a record high of 40,000.  The stock market may be booming, but 6 months before the elections the economy might best be described as uncertain.

There’s the good, bad and ugly in the American economy.  On the good side, “There are millions of job openings and the unemployment rate remains low.  But on the bad and ugly side there are a slew of red flags, like dangerously increasing personal debt and the massive U.S. national debt of over 34 trillion dollars that are haunting the economy.

“The rising levels of consumer debt and delinquency rates, if continued, are not just individual problems, but could have macroeconomic effects requiring attention from economic policymakers.  As more income is directed to debt repayment, consumers have less disposable income for other purchases.”

With rising delinquencies banks will be less likely to lend money to consumers, while consumers continue to spend more without regard to their debt.  “These combined effects can contribute to a broader economic slowdown--or even a recession.”  It seems that American consumers have lost their spending discipline in uncertain economic times--if they ever had any.

The gloomy consumer sentiment of a majority  of voters rather than objective economic criteria will likely have the greatest political influence in November.  It will ignore the optimism of Biden and most economists on inflation.  Consumers have a hangover from the inflation of the pandemic.  While increases in inflation are down, consumer perceptions remain gloomy.     

In 1992 James Carville observed that in politics “it’s all about the economy, stupid.”  That’s a matter of public perception, not the opinion of any economist or politician.  Today the stock market--right or wrong--remains the most influential factor in shaping public perceptions of the economic future, and those perceptions remain dismal, especially with Trump’s conviction. 

With the Trump conviction on Thursday, all bets are off on public perceptions in politics and the economy.  I didn’t see a guilty verdict coming, and I think most shared my surprise.  It will transform politics and concepts of legitimacy in our system of justice, with ripple effects (or tidal waves) in the economy.  Only time, the stock market and elections on November 5 will tell.     

Notes:

The stock market has already chosen a winner in the 2024 presidential election, See https://www.marketwatch.com/story/the-stock-market-has-already-chosen-a-winner-in-the-2024-presidential-election-bdbfec99.

The Washington Post Editorial Board has opined that Telling Americans the economy is good won’t work.  The 2022 inflation shock changed America, leaving a lasting psychological impact.                   https://www.washingtonpost.com/opinions/2024/05/29/us-economy-inflation-sentiment/?utm.

In Forbes Janet Yellen issued a serious $34 Trillion Warning on the fate of the U.S. dollar as the global standard of currency as Bitcoin is predicted to  surge to $1 million price.  See  https://www.forbes.com/sites/digital-assets/2024/05/27/janet-yellen-issues-serious-34-trillion-warning-as-bitcoin-predicted-to-surge-to-1-million-price/?sh=771b27d43be8.

 

On the good, bad and ugly American economy in uncertain times, see What’s really happening in America’s economy (Trump and Biden spin aside), at  https://www.cnn.com/2024/05/24/business/us-economy-whats-happening/index.html.

On a 2019 commentary on the good, bad and ugly in the American economy, with reference to religion, see Musings on the Good, the Bad, and the Ugly at

http://www.religionlegitimacyandpolitics.com/2019/05/musings-on-good-bad-and-ugly.html.

Trump’s Conviction Jolts the Race. But Will It Influence the Outcome? The political fallout is far from certain, but the verdict will test America’s traditions, legal institutions and ability to hold an election under historic partisan tension. Former President Donald J. Trump was convicted on nearly three dozen felony charges on Thursday. https://www.nytimes.com/2024/05/31/us/politics/trump-conviction-election-2024.html.