The Economy continued..

Even when the market does well why is that not necessarily a good judge of the overall economy?  A few ideas to consider:

1. Who is invested in the market?

According to a report in the New York Times, on February 8, 2018 eighty-four percent (84%) of all US stocks are bought by the wealthiest ten percent (10%) of the US households.  Pew Research states that though only fourteen percent (14%) of households directly invest in the market, close to fifty-two percent (52%) have some investment in the market typically in a retirement or 401K plan.

Though close to half of the population has an investment in the market, money tied up in retirement plans whether they are company sponsored or individual are not very liquid, typically imposing significant penalties if funds are withdrawn early.

2. What about GDP?

The Gross Domestic Product (GDP,) which is a measure of the monetary value of all finished goods and services made within a country during a specific period, hit an all-time low in the United States during second quarter 2020.  The percentage that GDP grew (or shrank) from one period to another is an important way for Americans to gauge how their economy is doing. The United States’ GDP is also watched around the world as an economic barometer. (Second Quarter 2020 Report, Bureau of Economic Analysis, U.S. Department of Commerce) The chart below shows the change in GDP at the end of second quarter for five industrial countries and the United States based on data from the World Bank (license CC-BY 4.0).