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People think the stock market and the economy “work together” because they sometimes move in the same direction — but that’s mostly coincidence, psychology, and the fact that both react to similar forces. The reality is more complicated, and the belief comes from a mix of intuition, media framing, and partial truths.
Even though the two influence each other, research shows the relationship is “intricate and multidimensional” and far more nuanced than most people assume. High stock prices increase the wealth of investors, who then spend more. This “wealth effect” can boost GDP and consumer spending.
Because this effect is real, people assume the market reflects the whole economy — even though it mostly affects high‑income households.
During the boom years after WWII: GDP growth, wages, manufacturing, employment, …were the real measures of economic health.
The stock market barely appeared in news headlines. Presidents didn’t brag about it. Most families didn’t invest in it. The economy and the market were seen as separate worlds. For most of U.S. history, people understood that the market was not the economy.
The 1980s were the turning point because the structure of the American economy changed, the financial system changed, and the culture around investing changed — all at the same time. The result was a world where the stock market suddenly looked like the center of economic life, even though it still wasn’t the whole economy. Before the 1980s, the U.S. economy was dominated by: factories, unions, wages, physical production, In the 1980s, the economy began shifting toward: finance, technology services, and global supply chains. This meant corporate profits grew faster than worker wages.
Wall Street became more influential than Main Street. When profits matter more than wages, the stock market starts to look like the “scoreboard” of the economy.
The 1980s changed everything because the U.S. economy became financialized — meaning profits, markets, and investors became more important than wages, workers, and production. That’s why people today think the stock market and the economy “work together,” even though they often don’t. #stockmarkets #economy #payattention