The Markets and the Economy. Might As Well Be on Separate Planets.

There was a time when stock markets were expected to rise and fall in step with the health of the economy. We call that the Era of Sanity. That time is past.

Paul Krugman explains:

On Tuesday, the S&P 500 stock index hit a record high. The next day, Apple became the first U.S. company in history to be valued at more than $2 trillion. Donald Trump is, of course, touting the stock market as proof that the economy has recovered from the coronavirus; too bad about those 173,000 dead Americans, but as he says, “It is what it is.”

But how can there be such a disconnect between rising stocks and growing misery? Wall Street types, who do love their letter games, are talking about a “K-shaped recovery”: rising stock valuations and individual wealth at the top, falling incomes and deepening pain at the bottom. But that’s a description, not an explanation. What’s going on?

The first thing to note is that the real economy, as opposed to the financial markets, is still in terrible shape. The Federal Reserve Bank of New York’s weekly economic index suggests that the economy, although off its low point a few months ago, is still more deeply depressed than it was at any point during the recession that followed the 2008 financial crisis.

What about stocks? The truth is that stock prices have never been closely tied to the state of the economy. As an old economists’ joke has it, the market has predicted nine of the last five recessions. 

Take the example of Apple, with its $2 trillion valuation. Apple has a price-earnings ratio — the ratio of its market valuation to its profits — of about 33. One way to look at that number is that only around 3 percent of the value investors place on the company reflects the money they expect it to make over the course of the next year. As long as they expect Apple to be profitable years from now, they barely care what will happen to the U.S. economy over the next few quarters. 

...So big tech stocks — and the people who own them — are riding high because investors believe that they’ll do very well in the long run. The depressed economy hardly matters.

So here’s the current state of America: Unemployment is still extremely high, largely because Trump and his allies first refused to take the coronavirus seriously, then pushed for an early reopening in a nation that met none of the conditions for resuming business as usual — and even now refuse to get firmly behind basic protective strategies like widespread mask requirements.

Despite this epic failure, the unemployed were kept afloat for months by federal aid, which helped avert both humanitarian and economic catastrophe. But now the aid has been cut off, with Trump and allies as unserious about the looming economic disaster as they were about the looming epidemiological disaster.

So everything suggests that even if the pandemic subsides — which is by no means guaranteed — we’re about to see a huge surge in national misery.

Oh, and stocks are up. Why, exactly, should we care?

Which raises the question of what will happen should Trump win a second term.  A president in his second and final term. Correction, a "grifter president" enjoying a second term without the slightest incentive to look after anyone's interests but his own. Four years to pillage the country, to siphon what wealth remains in the working classes into the coffers of the new aristocracy, perhaps to start a war just because he can as he slides even deeper into his psychosis. Enough, by any measure, to fracture today's already deeply divided America.

The economy versus the market, the people versus "his people," in Trumpland nothing is as it seems.