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Opinion: Why Dow 22,000 is not good news for most Americans

MarketWatch logo MarketWatch 8/3/2017 Rex Nutting

 

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Video by CBS New York

Editor’s note: The opinions in this article are the author’s, as published by our content partner, and do not necessarily represent the views of MSN or Microsoft.

The U.S. stock market hit another record Wednesday, with the Dow Jones Industrial Average surpassing 22,000 for the first time.

The media act like Dow 22,000 (DJIA) is a good thing. The cheerleaders in the anchor desks are wearing goofy hats and high-fiving each other like their team just won the Super Bowl.

But record-high stock prices are not inherently a good thing. Whether it’s good for you individually depends on whether you own lots of shares or not. Most people do not own very many shares at all, so most of us aren’t benefiting much from high stock prices.

The media don’t crow every time the price of milk goes up, so why should it cheer higher prices in a different market?

Who owns the stock market? About half of all equity is owned by the richest 1 million or so families, and another 41% is owned by the rest of the top 10%. The bottom 90% of families own about 9% of outstanding shares.

In the 2013 Survey of Consumer Finances (the most recent data), the Federal Reserve found that only 48.8% of families owned any stock, either directly or indirectly. For the bottom 50% of families by income, only about a quarter had any equities. The typical middle-class family that had some shares owned less than $10,000 worth.

Also read:How the stock market destroyed the middle class

High prices are good for the people who are selling, and not good for the people who are buying. If you are trying to save for your retirement, high prices are terrible. Your dreams just got further away.

The Dow Jones Industrial Average is expensive, so why is that good news?© Provided by Dow Jones & Company, Inc. The Dow Jones Industrial Average is expensive, so why is that good news?

High stock prices are particularly bad for young people. I bought my first shares for my retirement account back in the 1970s, so I’ve benefited from the incredible gains since then. But my children are buying high, not low.

With stock markets at record levels in nominal terms, and with price-to-earnings ratios through the roof, there’s not much upside left. Returns over the next decade or two or four probably won’t match the 11% compounded annual returns I’ve received since 1977.

High stock prices might have a benefit if it meant that more capital would be invested in America’s corporations.

That’s the myth of the stock market, anyway. In reality, the stock market doesn’t funnel any additional capital into corporations at all. Corporations have been net buyers — not sellers — of equities for the past 30 quarters in a row.

The stock market is actually a process for extracting wealth from corporations and giving it to wealthy people.

So spare me your celebrations of another milestone on Wall Street. It’s great news for the wealthy, because what they own just got more valuable. But for those of us trying to build some wealth, it’s not such good news.

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