The Stock Market is Not Your Friend

Imagine celebrating the price of corn or wheat hitting a record high. That would make perfect sense if you grew corn or wheat, but it’s hard to see why anyone else would be celebrating. This is the same story with the stock market, even though shareholders are a somewhat larger share of the population than corn or wheat farmers. But the basic principle is the same.

In principle, the stock market reflects expectations of future after-tax corporate profits. Expected profits can rise because the economy is expected to grow more rapidly, and corporations will get their share as profits rise along with the economy. But that has not been the case over the last quarter-century.

The after-tax profit share of national income has nearly doubled, going from an average of 6.6 percent in the 1990s to 12.5 percent in the last quarter of 2025. This explains most of the soaring stock market over this period, although the ratio of stock prices to corporate earnings is also near a record high, leading many of us to argue that we have a stock bubble.

It is hard to see why the bulk of the population, who own little or no stock, should be celebrating the redistribution from wages to profits that provides most of the basis for the run-up in stock prices in the last quarter-century. (It’s worth noting that there was massive upward redistribution from 1980 to 2000, but that was mostly within the wage structure, with money going from ordinary workers to corporate executives, STEM workers, and Wall Street types.)

In the Federal Reserve Board’s most recent Survey of Consumer Finance, just 34 percent of households in the bottom half of the income distribution owned any stock at all, either directly or indirectly in a mutual fund. For this group, the median holding was just $12,600. Among the upper-middle-income group, from the 50th to the 89th percentile of the income distribution, 78 percent owned stock. For this group, the median holding was $53,200.

This survey was conducted in 2022, so raise these sums by around 25 percent to account for the rise in the market. That still only gives a median holding of $15,800 for the stockholders in the bottom half of the income distribution and $67,500 for the upper-middle-income group.

Compare this with the wage loss associated with any possible stock gains for the bulk of the population. According to the Economic Policy Institute, the average hourly wage for workers at the 30th percentile of the wage distribution was $19.70 an hour. That would come to a bit over $39,000, a year assuming a 2000-hour work-year. Health care, pensions, and other non-wage benefits add a bit over 20 percent to this sum, bringing annual compensation to around $43,000 for the 30thpercentile worker.

The 5.9 percentage point increase in the profit share in the last quarter century would be sufficient to raise wage income by 8.8 percent. For the 30th percentile worker, that would come to $3,800 each year. Compare that to the $15,800 median holding for the one-third that own any stock at all. Should this half of the population be celebrating higher stock prices?

Looking at the upper middle group, the hourly wage at the 70th percentile is $36.80. That comes to $73,600 for a full work-year. Adding in 20 percent for non-wage benefits gets them to $88,300. An 8.8 percent pay raise, from reversing the redistribution to profits, would mean $7,800 a year. That’s a bit of a closer call for the 78 percent that own stock. But with a median holding for this group of $53,200, the vast majority would be much better off with a bigger paycheck and a 50 percent decline in the stock market.

The arithmetic on this is pretty straightforward; the vast majority of people in the country would have been far better off without the redistribution from wages to profits and a much lower stock market. Asking them to celebrate the rise in the market is similar to asking the wheat and corn eaters among us to celebrate the rise in the prices of these grains.

There is one other point worth noting in this respect. As I said, the price-to-earnings ratios in the stock market are near record highs. That is also not something most of us have cause to celebrate.

The run-up in house prices has far exceeded the run-up in rents over the last decade. This is likely at least in part attributable to people with big gains in the stock market bidding up house prices. Many of the big winners in the market have two or three homes.

Are you happy about high house prices? It is pretty incredible that many of the same folks who yap about affordability will also praise a run-up in stock prices. So much for consistency.

Anyhow, it really would be good if folks talking about the stock market did so with a little self-awareness. Most of the people we hear talking in the media probably have a good chunk of money in the stock market, and for that reason have cause to celebrate higher stock prices, but that is not the story for most of the country.

This first appeared on Dean Baker’s Beat the Press blog.

The post The Stock Market is Not Your Friend appeared first on CounterPunch.org.