Buzz
Last week, the Dow Jones Industrial Average hit a historic 25,000-point milestone for the first time ever. Time for celebrations and presidential tweets. But what does it really mean for you?
With politicians and pundits reacting to the good news, you'd expect to see people celebrating in the streets, tossing their newfound wealth around in cashmere sweaters. Yet, that’s not happening because the Dow Jones doesn’t reflect how most people experience the economy. For many, it just doesn’t feel like things are that great, regardless of the record-breaking numbers.
To provide some context, the DJIA is based on the stock price of 30 randomly-selected companies in the U.S. The issue here is that the stock price doesn’t truly represent the company's size or market value. In the Dow, the highest-priced stock holds the most influence.
The S&P 500, which offers a more comprehensive index weighted by market cap, has also been hitting record highs: it closed at 2,747.71 on Monday. While it doesn’t have the same ring as Dow 25,000, it’s also making headlines. (The Nasdaq is also reaching new peaks.) However, as economists like to remind us, the stock market does not equal the economy.
To provide some perspective: only 52 percent of American adults owned stocks in 2016, according to Gallup. As expected, stock ownership is not evenly distributed across income brackets: The Federal Reserve reported that 93.6 percent of families with a median income of $251,500 (the top 10 percent of earners) owned stocks, while fewer than 40 percent of families earning up to a median income of $54,100 (0 to 50th percentile) did. Separately, an economist from New York University found that in 2013, the top 20 percent of earners held 92 percent of the stocks. So, celebrating record highs for an arbitrary index that nearly half of adults don’t benefit from doesn’t make much sense.
What’s a more relevant measure for the average worker? I'd argue it’s employment, wages, and debt. And here’s the thing: if you're unemployed, you’re probably less concerned with whether the Dow is at 21,000 or 25,000, and more focused on when your next paycheck will come. While the unemployment rate is at its lowest in 17 years, economists are concerned that job growth could slow. Wages remain low, and debt continues to climb*—the Federal Reserve reports that consumer credit card debt has reached a new record high of $1.0227 trillion, which should make Dow enthusiasts stop and think. (*Actually, the Fed found that we’re slightly less indebted overall because we're not buying homes, which isn’t exactly a silver lining). Are you really celebrating the Dow’s new milestone if you're carrying over $25,000 in student loan debt?
Medical expenses, too, have risen about 34 percent over the past decade, according to Nerdwallet, while the median income has only increased by 20 percent. Additionally, 62 percent of Americans surveyed by the American Psychological Association admitted to being stressed about money—a trend unlikely to change—regardless of the Dow’s soaring heights—if the typical bank account balance remains below $4,000. Of course, we’d all love to invest more and enjoy the benefits of soaring stock gains. But many of us simply can't.
If you listen to Republicans, the new tax plan will resolve all of these issues: workers will soon enjoy higher wages, which they can use to pay off their debts and invest any leftover funds. Once CEOs become richer and happier, the rest of us will follow suit. If that happens, I'll be the first to pop bottles in the street.
