The Black Monday Crash of 1987 was so fast and serious that some people wondered if it was the signal of an approaching depression:
Most people did not really think that 1987 was the same as 1929, but the crash was painful enough to cause experts to at least consider that an economic disaster was on the horizon.
The stock market fell by more than 20% and almost 35% during the course of a week, but the economic impact was … zero.
The next recession in the US only struck in the summer of 1990. The stock market ended the year with a profit of about 5% in 1987 and was on the way to the races after the crash.
The stock market was not large and powerful enough to cause an economic decline. This is mainly because not so many people had shares. In 1987, about 25% of American households had shares in any form – individual shares, investment funds, etc.
You can see that ownership of the stock market did not really start in a meaningful way to the 1990 out of expansion from:
This graph is a few years old. Nowadays the song is 62% of households Those own shares. This increase in ownership means that the stock market is much more important for more people than in 1987 (DUH).
Chart Kid Matt Has an excellent graph that shows how power will never be woven with the stock market:
You can see the huge leap that this relationship has made since the 1980s.
Here is a good stat The Wall Street Journal That cemented this idea:
Shares as a percentage of the financial assets of households rose to 36%in the first quarter, the highest level in records that went back to the 1950s, according to Ed Clissold, Chief US strategist at Ned Davis Research.
Now some people consider this data as a reason for concern. A rising stock market could cause more households to spend more loosely money.
If the market is around, it can cause households to cut consumption. Nobody knows if this asset effect will certainly appear, but it is certainly worth considering.
A rising stock market is probably also increased the spending on the richest subset of the population. The top 10% Owns almost 90% of the stock market.
According to The Washington Post They also drive the most editions:
“In the short term everything is based on what that top 10 percent decide to do or not.
Zandi believes that the top 20 percent of households continue to grow their spending, although they have been withdrawn somewhat in the midst of so much uncertainty. In the meantime, the bottom 80 percent of households only keep their expenditure growth in accordance with inflation. This is a remarkable shift of the era of “revenge expenditure” from 2022 to 2024, when people of all income levels were splashing somewhat after the end of Pandemic Lockdowns.
This graph says a lot:
This is of course not all stock market. This group also earns more money.
In essence, is this a problem with the chicken-or-the egg-ox a slowing economy causing the stock market to fall or will a falling stock market ensure that people curb their expenses?
It’s hard to say which comes first.
The growing importance of the stock market on the economy is good news. It is a sign of progress to invest more people in shares. I hope it continues.
But it will be interesting to see if this growing interest ultimately has an impact on the economy.
Can the stock market cause a recession?
The possibility is nowadays higher than ever.
Michael and I spoke about the growing importance of the stock market for the economy and much more about this week’s video of Animal Spirits:
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