Why Is the Stock Market Booming? Or Is It?

In his column today Paul Krugman flicked at a point about the “soaring” stock market that deserves a bit more attention:

The recent rise in the market has been largely driven by a small number of technology giants. And the market values of these companies have very little to do with their current profits, let alone the state of the economy in general. Instead, they’re all about investor perceptions of the fairly distant future.

Take the example of Apple, with its $2 trillion valuation. Apple has a price-earnings ratio — the ratio of its market valuation to its profits — of about 33. One way to look at that number is that only around 3 percent of the value investors place on the company reflects the money they expect it to make over the course of the next year. As long as they expect Apple to be profitable years from now, they barely care what will happen to the U.S. economy over the next few quarters.

Longtime readers know that when I say something “deserves a bit more attention,” that means you’re about to see a chart. Here it is:

This is an S&P 500 index with tech stocks removed and adjusted for inflation. You can see two things. First, over the past three years it’s not very impressive. Second, it plunged in March thanks to COVID-19 and has never recovered completely.

(And that’s even though this index includes powerhouses like Amazon, Google, and Facebook, none of which are categorized as “information technology.”)

In one sense you don’t want to make too much of this. You can always remove the top performer from a broad stock index and produce a weaker looking trend. Still, this is more dramatic than usual. This isn’t just weaker looking, it’s practically flat. The collective performance of literally everything in the United States is kind of dismal except for companies like Microsoft, Apple, and Oracle.

So when someone asks why the stock market is doing so great even though we’re in the middle of a massive pandemic, this is part of the answer: it’s not doing so great. Aside from tech stocks, the market has been ho-hum over the past few years and is still down 4 percent from its pre-pandemic level. Investors obviously have some confidence that the economy will rebound once we approve a vaccine and the pandemic is finally sidelined—as they should—but they’re hardly being cheerleaders for the overall economy. They just like tech stocks.

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Truth #1: The chaos is the point.

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SIX TRUTHS

Reclaiming power from those who abuse it often starts with telling the truth. And in "This Is How Authoritarians Get Defeated," MoJo's Monika Bauerlein unpacks six truths to remember during the homestretch of an election where democracy, truth, and decency are on the line.

Truth #1: The chaos is the point.

Truth #2: Team Reality is bigger than it seems.

Truth #3: Facebook owns this.

Truth #4: When we go to work, we're in the fight.

Truth #5: It's about minority rule.

Truth #6: The only thing that can save us is…us.

Please take a moment to see how all these truths add up, because what happens in the weeks and months ahead will reverberate for at least a generation and we better be prepared.

And if you think journalism like Mother Jones'—that calls it like it is, that will never acquiesce to power, that looks where others don't—can help guide us through this historic, high-stakes moment, and you're able to right now, please help us reach our $350,000 goal by October 31 with a donation today. It's all hands on deck for democracy.

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