The stock market had its biggest sell-off in five weeks Wednesday, thanks to more evidence of meager job growth. The official March jobs data come Friday morning as stocks are just below all-time highs.
Don't confuse the record high stock market earlier this week as proof the U.S. economy has healed from the Great Recession. Instead, for many Americans, household budgets remain under significant pressure, nest eggs remain shattered and job security is tenuous.
There was a time when half of American households made more than $52,000 per year, the unemployment rate was about 4.5%, we were paying an average of $2.76 per gallon for gasoline and the stock market was hitting record highs. That's not today. Except for the stock market. But are you better off now versus 2007 when the Standard &Poor's 500 last traded at these levels?
Compared with the fall of 2007, median household incomes have dropped 4%. Home prices are down 16%. And gas is well over $3.50 a gallon. While a new strength for the stock market is worth celebrating, it changes little for most households.
Sure, America and Americans are showing signs of healing from the deep financial wounds of the Great Recession. Home prices are climbing again. Unemployment is dropping. Even U.S. manufacturing is enjoying a boomlet after a decades of decline. But the real economy is not reflected on Wall Street. After all, it is a market of stocks. And with corporate profits at record levels, who wouldn't want to own a small slice of that pie?
The majority of Americans, that's who.
While the statistic varies slightly from source to source, most surveys suggest roughly half of households have a financial interest in the stock market. Those that do don't have much invested. The Economic Policy Institute finds a third of "small investors" really are small. Very small. They own less than $10,000 in stocks. Though that might be big money to them, it's chump change on Wall Street.
This rising stock market tide is not raising all boats because most Americans aren't more than ankle-deep, if that.
Even so, the halo effect of record high stock prices can't be denied. It's much better living in an economy with an upward sloping stock chart than the cliff dive and subsequent financial devastation that happened between September 2008 and March 2009. Household net worth now totals $66 trillion, driven by the twin recoveries in the real estate and stock markets. Both of those rebounds have been staged with cheap money courtesy of the tally keeper of Americans' net worth: the Federal Reserve.
Lower interest rates
The unprecedented action by the central bank to drive down the cost of cash with lower interest rates has driven up stock prices. Though the virtue of the effort (and its yet-to-be-seen consequences) will be studied for decades, it has succeeded. Mortgage rates are dirt cheap, helping re-inflate housing prices. Companies' bottom lines have ballooned partly because of cheaper borrowing costs. And even the federal government itself has saved hundreds of billions of dollars thanks to low interest rates.
Critics argue that the money created by the Federal Reserve's strategy is phony. But the stock gains partially driven by the effort aren't. It's too bad more Americans aren't directly profiting.