“The economy and markets are intertwined. A sharp drop in the stock market will impact economic activity. They are all in the same bed together,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group.
The risk is that the market’s turmoil spills over into the real economy, erasing trillions of dollars in household wealth.
“There is a real threat to Main Street. The Fed is trying to raise rates to ease inflation, but not choke off economic growth. It’s a very fine balance,” said Kristina Hooper, chief global market strategist at Invesco.
At the same time, market stress can make it harder for companies to raise money in capital markets that had been wide-open until very recently.
“A sustained selloff in the stock market starts to catch people’s attention and does affect confidence over time,” said Ethan Harris, head of global economics at Bank of America. “The average person judges the economy by a few statistics. One of them is the Dow Jones Industrial Average.”
Americans are more exposed to market turmoil today
It’s true that the fortunes of the rich are more closely tied to the stock market than the middle class, whose wealth is linked more to home values, which are way up during Covid.
Yet stocks represent a greater chunk of the average American’s net worth than they used to.
Households in the 50% to 90% wealth range held $4.3 trillion in stocks and mutual funds as of last year, representing 9.4% of their net worth, according to the Fed. That’s up from just $1.6 trillion and 6.4% a decade ago. In 1991, stocks made up just 4.7% of this group’s wealth.
Likewise, the bottom 50% of US households held $260 billion in stocks and mutual funds, comprising 2.9% of their wealth. That’s up from $90 billion and 1.8% of their wealth a decade ago.
Asked about the recent market drop, a White House official told CNN the administration focuses on trends in the economy, not any single indicator. The official pointed to “real progress” demonstrated by the 3.9% unemployment rate and jobless claims that have declined by about two-thirds from a year ago, when the unemployment rate was 6.4%.
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