If you're puzzled by the apparent disparity between the performance of the "real economy" and Wall Street's highest-flying stocks – including Microsoft, Nvidia, Amazon, Meta, and Alphabet – you're in good company. Senior Market Watch financial journalist Mark Hulbert noticed the same phenomenon.
For answers, Mark turned to Vincent Deluard, Director of Global Macro Strategy at StoneX, who provided a critical analysis on the growing gap between Wall Street and Main Street.
According to Deluard, the disconnect has its roots in a series of policy moves dating back to the 1970s. Most notably among them the Wall Street-lauded shift from defined-benefit to defined-contribution retirement plans.
This transition marked the beginning of what Deluard describes as the "stock-market cult," prioritizing stock price growth over broader economic health. As a result, the Fed's tolerance for the natural ebbs and flows of the market has waned, leaving little room for the corrections necessary for long-term economic stability.
Deluard's cites Goodhart's Law as the driving principle behind this observation. Put simply, Goodhart's Law states: once a measure of economic health becomes a target for policy, it ceases to be a reliable indicator.
The outsized valuation of the aforementioned tech giants, which significantly outweighs their actual economic contribution in terms of sales and employment, perfectly demonstrates this law in action. While these companies dominate stock market value, their real-world impact is much less pronounced, highlighting the growing inadequacy of stock market to provide a barometer for economic well-being.
As the decoupling between Wall Street and Main Street widens, Deluard's analysis urges a reevaluation of our economic policies and measures of health. He promotes the importance of developing a more holistic understanding of economic prosperity, beyond the narrow confines of stock market performance.
For more insights from StoneX's experts, visit our Market Intelligence page.
Read the original article by Mark Hulbert.
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