Is what's good for the economy good for Wall Street, and vice-versa?

In this thread – “Economy vs the President” – questioned the proposition: “Around the 2000 election, people where mentioning that the markets prefer Bush because, traditionally, Republicans have been better for the economy.” He was making the point that statistical analysis shows the economy actually has fared better under Democratic presidents.

But I find myself wondering about that phrase, “the markets,” as an implied synonym for “the economy.” They’re not the same thing. “The markets” usually means securities markets – stocks, bonds, commodities futures – as disctinct from actual industrial production and commerce in goods and services.

Which raises an interesting economics question: Is what’s good for “the economy” – that is, those aspects of it such as the unemployment rate, the inflation rate, interest rates, that directly affect the lives of ordinary middle-class and working-class people – always good for Wall Street, and vice-versa? Is it possible for the one to thrive while the other doesn’t?

I don’t know the answer, but I would hesitate to simply assume (as the Pubbies apparently do) that the answer is an unqualified yes.

Define “the market”. Is it the Dow, as most people mean? Or the S&P 500? Or some broader measure? Markets are trying to be forward looking and guess what’s going to happen some time down the road-- maybe next quarter or maybe 5 years. But markets also tend to overreact, and are much more volitile than, say, GDP.

Additionally, you have to consider that most people have 401ks or some sort of retirement fund invested in equities. If a person’s wages are stagnant, but his retirement fund booms, is he doing well or doing poorly? What about if the reverse happens?

You have framed much too broad a question to be answered. But, if the economy is doing well, then markets should do well** in the long run**. I don’t know if I would put any faith in the converse of that statement.

I was thinking of “the stock market” in general terms, as most people do. In 1929 there was a stock market crash, followed, but not immediately followed, by the Great Depression – hard to tease out cause-and-effect there. The bursting of the bubble in the '90s, on the other hand, did not seem to seriously hurt the economic recovery.

I guess I’m just asking: Based on the question which inspired this thread – if you’re thinking of voting Republican because Republicans are “better for the market” (which might or might not be true) – is that a rational decision if you, yourself, do not have anything invested in the market (even in the form of a 401(k))? Is what’s good for the market good for you, as a person who works for a living, and who has to live on his/her paycheck, and who might lose his/her job and have to look for another one, and who has to buy large items (homes, condos, cars, college tuition) through financing at interest?

Nobody has an opinion? I’m disappointed. Sorry for the bump, but this is a really important question. People might make their voting decisions based on the question of whether Bush or Kerry is better for the securities market. And we know who the Wall Street Journal is endorsing. But some of the people taking that into account might be people who do not actually have anything invested in any securities market, but who simply assume that whatever is good for Wall Street is good for the economy.

Remember The Jeffersons episode when George was estatic that it was raining heavily in Illinois, because a crop disaster would mean huge windfall profits in his mercantile deals?

That is how the market is like sometimes. Layoffs, outsourcing, more teens smoking, more people having to go to the hospital and either take drugs or undergo expensive surgery, means big money to many Wall Streeters, although it may be disastrous to sthe rest of the economy.

Not true; less than half of the households in America own a single share of stock.

:eek: !

First off, I’m not sure why the :eek: was put in there. There’s always winners and losers, that’s what the market’s all about. My granddad bought himself a nice piece of farmland by being the only one in town who read the paper and knew that a frost in Brazil was damaging the coffee crop. He bought up all the coffee in town, sat on it, and resold it for a nice profit when the price went up. Everyone else’s pain was his gain. Like Nicholas Cage said in Moonstruck, “What am I? A monument to justice?”
As for Wall Street, well sometimes the economy’s good for it and vice versa and sometimes not. If you’re talking bond traders, well, those guys don’t ever want anyone but themselves to have a job. Stocks tend not to do well when interest rates rise also, so they sometimes stall out when the economy is doing well and interest rates are rising. But usually IPO’s are going gangbusters when the economy is expanding, so the profits of the Wall Street investment banks do nicely anyway, so in that way I suppose what’s good for the economy’s good for Wall Street, and vice versa.
Like everything else, it all depends.

Let me put it this way: Suppose I’m a working stiff and I, personally, have nothing invested in any securities market. I see on the news that the Dow Jones Average or the Standard & Poor Index just went up today. Should I read that as good (for me) news, bad news, or irrelevant news?

Well, your granddad certainly wasn’t a monument to capitalism – not in any productive sense. He didn’t actually produce any coffee, or bring it to people who might not otherwise have had access to it; he just exploited a bump in the market. It’s exactly that kind of thing people are thinking of when they deride Wall Street as a nonproductive, parasitic, “casino economy.”

BG: Suppose I’m a working stiff and I, personally, have nothing invested in any securities market. I see on the news that the Dow Jones Average or the Standard & Poor Index just went up today. Should I read that as good (for me) news, bad news, or irrelevant news?

I’d guess ©. I don’t see how it’s possible for you to tell, just from that information, what caused the market rise and whether it would be good, bad, or indifferent for you. Since you don’t own any stock, the market rise itself doesn’t matter to you one way or the other.