Three U.S. stock markets hit all-time highs this month, and the value of all global shares for the first time topped $100 trillion as investors bet on a post-pandemic return to normal in 2021. The stock price of rental marketplace Airbnb more than doubled Thursday, even as the Labor Department said nearly 1 million more Americans had applied for unemployment benefits, neatly capturing the tension between a bubbly stock market and grass-roots anguish.
“We’re in a euphoric, frothy kind of market,” said Liz Ann Sonders, chief investment strategist for Charles Schwab & Co. “Is there speculative fever? Absolutely.”
Yet the bull market may just be getting started. With the Federal Reserve planning to hold its benchmark lending rate near zero for at least three years, stocks are likely to remain attractive in comparison with bonds, according to investment strategists.
Soaring stocks would cheer millions of Americans. But rapid financial market gains amid a grinding labor market comeback could make it harder for President-elect Joe Biden to achieve his goal of building an economy that works “for all Americans.”
A rising market would mostly benefit the already affluent; only 14 percent of individuals in the bottom one-fifth of the income distribution own stocks, either directly or through retirement accounts, according to the Federal Reserve. An uninterrupted bull market also might erode support for government spending to help ailing businesses or the jobless, if some lawmakers interpret higher share prices as a sign of economic health.
“A huge amplifier of the inequality trifecta — of income, wealth and opportunity — the covid shock has pulled the Federal Reserve deeper into policies that are inadvertently worsening wealth disparities,” said Mohamed El-Erian, an economist and president of Queens’ College, Cambridge, in England.
As financially comfortable Americans grow richer, low-income service industry workers — disproportionately people of color — are likely to struggle to reclaim their jobs in hotels and restaurants. Such an uneven recovery threatens to exacerbate a rich-poor divide that Biden has vowed to narrow.
This summer, Biden called for legislation to add to the Fed’s existing twin mandate — providing full employment and stable prices — a focus on mitigating “persistent racial gaps in jobs, wages, and wealth.” That proposal, at least at first, is likely to be eclipsed by what many economists say is an urgent need for Congress to approve more aid for small businesses, the unemployed, and state and local governments.
“Relying on easy monetary policy will increase inequality. What we really need is fiscal policy to upgrade our workforce, generate good (high wage, high hour) jobs,” economist Megan Greene, a senior fellow at Harvard University’s Kennedy School of Government, said via email. “Central banks…
Read More: Pricey stocks may yet head higher as uneven economic recovery maintains