Stock Market More a Security Blanket Than Bellwether

In the race to the bottom for accuracy in forecasting, 2023 was a good year for meteorologists. It established – perhaps once and for all – that weather forecasters are ahead of economic prognosticators in at least getting it close to right. And the receipts are to be found on Wall Street.

While most people understand the stock market is not the economy, the business media continues to spoon-feed daily closing numbers to their audiences as if it were some kind of economic shorthand. Somehow the results of the trading day are supposed to encapsulate the state of the economy providing the public with just enough information to be really confused about what is really going on.

And while economists and analysts repeat the mantra that the economy is more than what happens on Wall Street, they still tend to define the equities markets as some kind of economic barometer revealing where big investors think the economy is headed. That notion is true only insofar as what moves those big investors are planning to make. But it is more of a forecast than a bellwether. And like hurricane forecasts, the cone of probability can be much wider than is apparent.

But 2023 showed the stock market might just be more of the economy than we think. Throughout 2023 the messengers of doom and gloom were relentless in their warnings of an impending recession. Fixated on the notion that the economy was surely headed for a downturn, despite the stream of positive economic data, they clung to the idea with fervency. To do so, they had to ignore what was happening on Wall Street and other equities markets around the world.

The S&P 500 ended the year up 24%. The tech-heavy Nasdaq was up 43% and the granddaddy of them all, the Dow Jones Industrial Average finished 2023 up 14%. If the stock market is an economic oracle, then the “experts” misread the tea leaves.

As we plunge further into the new year, the stock indices have maintained their upward march, flirting with record highs and, presumably, baffling the economic pessimists who see wrack and ruin around every corner.

That can only confuse consumers who aren’t well-versed in the jargon of high finance and just want a little reassurance that things are getting better.

Wall Street may not be the canary in the financial coal mine, but it is more than gains and losses. It might be more useful to see them as economic security blankets. People can understand what the stock market is without really understanding how it works. Given a daily dose of market news, delivered in quick bits, the intricacies of equities trading is reduced to a simple up or down metric. If the markets were up, everything is good; if they were down, time to batten down the hatches.

Of course, it is not that simple. And the broad familiarity people have with Wall Street as the financial heart of the United States obscures the paucity of their comprehension of complex macroeconomic and financial matters. But the stock market is inherently forward-looking and is broadly reflective of what those who do understand how the financial sausage is made see on the horizon. That is something economic commentators missed in 2023 and it seems 2024 will be no different.