Why Record-Breaking Dow Jones Isn’t Helping You Profit
The Dow Jones Industrial Average closed at 25,000 points for the first time in history last week. Prompt champagne toasts and presidential tweets.
Given the reaction of some politicians and pundits to the good news, people would be expected to dance in the streets, throwing their newly acquired wealth in cashmere sweaters into the air. However, this does not happen because the Dow Jones is not a good indicator of how most people perceive the economy. A lot of people just feel like things aren’t going well, record numbers or not.
For reference: DJIA is based on the share price of 30 randomly selected US companies . One problem is that the price per share does not quite reflect the size of the company in terms of market capitalization. in terms of employees, etc. In the Dow, the most expensive stocks have the most influence.
The S&P 500 is a much broader index weighted by market cap and recently also hit record highs, closing at 2,747.71 on Monday. It’s not as important as the Dow’s 25,000. (The Nasdaq scores high, too.) However, as economists like to say, the stock market is not an economy.
By comparison, according to Gallup, in 2016, only 52% of American adults owned stock. And, as you might have guessed, stockholding is unevenly distributed across income groups: The Federal Reserve reports that 93.6 percent of households with a median wage of $ 251,500 (the top 10 percent of wage earners) owned stock in 2016. while less than 40 percent of families earning up to an average wage of US $ 54,100 received it (0 to 50th percentile). In addition, an economist at New York University found that in 2013, the richest 20 percent owned 92 percent of the shares. meaning.
Which measurement is best for the average worker? I would put employment, salary and debt. And here’s the thing. If you don’t have a job at all, you are probably less concerned about whether the Dow is 21,000 or 25,000 than when you get your next paycheck. The unemployment rate is at a 17-year low, but economists fear that job growth may start to slow. Plus, there are low wages and our debt that continues to climb * – consumer credit card balances hit a new all-time high of $ 1.0227 trillion, according to the Federal Reserve, which should give Dow enthusiasts pause. (* In fact, the Fed recently found that our overall debt is slightly less because we are not buying houses, which is not entirely encouraging.) Are you really celebrating the new Dow watermark with over $ 25,000 in student loan debt ?
Nerdwallet for data , medical expenses also increased by about 34 percent over the last decade, in while the average income grew by only 20 percent. 62 percent of Americans surveyed by the American Psychological Association said they were stressed about money – a figure that is unlikely to change – no matter how high the Dow rises – if the average bank account balance stays below $ 4,000 . Of course, we would all like to invest more money and reap the rewards of huge profits. But many of us cannot.
If you listen to the Republicans, the new tax plan will solve all of these problems: soon workers will receive higher wages that they can use to pay off their debt, and will invest what is left. When CEOs are richer and happier, so will we. If this happens, I will be the first to burst a bottle on the street.