A Rising Tide
As summer winds down, we can all feel the last week of August lull. For sure, Labor Day will mark a return to some of what has been put aside; presidential campaigns will ramp up; Congress will dither and make aimless news; Apple will launch a new phone remarkably similar to its current phone.
But for stocks and financial markets, this August has been notable in a rather quiet way: markets have gone steadily up after that intense sell-off to begin the month, and the Dow hit a new all-time high. That is notable because August has historically been one of the worst months for stocks. It is one of only three months that have averaged a decline since 1945 (the others are September and February). This month, the S&P500 is up about 3%, and close to 10% since its brief early month swoon.
Much of what goes on in market-land is inside baseball. It’s interesting if that’s what you do for a living, and otherwise not. But how markets perform is more relevant than many of us recognize. That contradicts the frequent refrain that stock markets benefit mostly the very wealthy.
It is certainly true that the very rich own a disproportionate share, with the top 10% owning about 90% of the overall market and the richest 1% owning more than 50% of the market. But those stats mask the fact that more than half of all Americans own stocks. Yes, there is intense wealth concentration in the United States, and yes, that is in contrast to many periods of American history where the gap between the very wealthy and the rest was narrower.
At the same time, according to Gallup, more than 60% of Americans own stocks, mostly through their retirement plans. You wouldn’t know it from the way markets are frequently discussed—as a casino for the wealthy, a plaything of Wall Street. And while the absolute dollar amounts skew heavily to the 1%, some of that 1% isn’t made up of wealthy individuals but instead multi-billion dollar pension plans that in turn ultimately benefit teachers and other public unions. So while one can just as accurately say that 120 million people are left out of the market, you can also accurately say that 200 million people are in it. Once again, that puts us in the land of: cup half-full or cup half-empty?
Markets going up, therefore, is the proverbial (and cliched) rising tide lifting a lot of boats. And it’s more than that. It means that stock markets in the United States have become a connective tissue between the best of what capitalism and companies offer and our collective prosperity.
Take a company such as Nvidia, much in the news these days as the latest belle of the market ball whose share price has rocketed on the heels of expectations that we are in the earlier stages of an AI boom and that Nvidia will benefit hugely. As its market cap exceeded $1 trillion, then $2 trillion and then $3 trillion, yes, its own employees became richer and richer, as did early-stage investors. But so did millions of people who own Nvidia stock through their passive funds in their 401k plans. And yes, as the stock goes up or down, as it has and will, those millions directly participate in both Nvidia’s innovative capacity and in whatever market mania and then panic its stock price reflects. The same has been true of Apple and Amazon and before them Starbucks and Nike and GE and IBM and on and on. The ride is most definitely not a straight line up, but it tethers a large percentage of the American population not just to the market but to the dynamism (and sometimes foolishness) of the companies that are defining our material lives.
That is not a good story if you believe that the creep of the market and capitalism into every living room is a negative force. And yes, market creep and consumerism have created imbalances, too much focus of stuff and not enough on quality of life and relationships. You can critique the way capitalism and its excesses are distorting our lives without then decrying the way that stock ownership at a mass scale connects us to our system in a way that is, well, highly democratic.
For sure, I’ve been a market participant, and benefit disproportionately, But I also was trading stocks as a graduate student in history in the 1990s, with my $10,000 portfolio fascinated and intrigued by what those new companies like Yahoo and Lycos and AOL were doing, sensing that we were at the dawn of something new and powerful. Millions of Millennials, and Gen-Z (and soon Gen Alpha) use the digital trading tools to make similar forays, raising their awareness, and activating them. Some will lose and be disillusioned; some will do just okay. But all of that, in turn, creates an ecosystem that is far more woven into our society than the binary of rich and poor, or very rich and middle class, would have us believe.
Of course, markets may have dropped sharply by the time you read this or gone up even more. Day-to-day moves are not to be predicted, and don’t change the point that more and more of us are stockholders and therefore stakeholders in how our companies thrive and whether our collective economy does. Tempering capitalism, making sure that gain and profit are not the sole ends of our energies, is vital. Benefiting alongside companies that are in the business of meeting societal and individual needs and desires, well, that is an unalloyed positive for us all.
The critical here question is: a rising tide of *what*? The stock market is not the actual economy that people live in. In fact, I’d suggest it is contrary to general economic health — essentially economic “junk food”.
The corporation itself, when it goes public, only benefits at the initial public offering. After that, it’s just a gambling casino. Yes, corporate principals and many employees often hold stock, and so benefit when share prices rises, but that does nothing for the general operating funds. In fact, the need to pay dividends or buy back shares down the road is a liability to the company.
One of Gandhi’s seven deadly sins was “Wealth without work”. The majority of general shareholders have nothing to do with the company, its operations, or ability to create value. They may not even know what the company really does. Their only concern is making the share price go up - by whatever means necessary, even if it means destroying the environment, small business, communities — or sending weapons to foreign counties to devastate populations.
Money was originally a means of exchange for goods and service. Today, goods and services (whether real or illusory) are largely used a means to get more money. Delivering actual value only detracts from profitability (ask any health insurer). THIS is what threatens to destroy society, country, and planet.
Can we change course at this point? I have to say I’m not hopeful.