The Stock Market Is Rising. Why Are So Many Families Still Struggling?

If you only looked at the stock market, you might think the American economy is doing great. Major stock indexes are near record highs, corporate profits are strong, and investors feel hopeful about artificial intelligence, productivity, and future earnings.

But at the same time, most families worry about rising costs, have trouble getting ahead financially, and feel left out of the economic success they hear about in the news—and with good reason.

For broader context to help you understand how the world has changed for middle-class America, wrap your mind around this. According to the non-partisan Rand Corporation, $79 trillion in wealth has been redistributed from the bottom 90% to the top 1% in the United States since 1975. What's heartbreaking is that the median household income would be double what it is today if income inequality had remained at its 1975 level.

The Stock Market Is Not the Economy

The stock market shows how much publicly traded companies are worth and reflects how investors feel about future corporate profits.

But the real economy covers much more. It includes wages, household income, job quality, affordability, economic security, and how everyday families are doing financially.

For many years, the real economy and the stock market tended to move together. When businesses did well, workers usually benefited too. Now, that connection has weakened a lot.

According to research from the Federal Reserve Bank of New York, American workers now receive just 54.1% of national income, the lowest share since the government began tracking the data following World War II. Nearly 80 years ago, workers received more than 65% of national income. Even before the pandemic, labor's share stood at 57.7%, showing that workers have continued losing ground in recent years.

In other words, the economy can grow even as workers get a smaller share. That’s why the stock market can go up while many families still feel left behind.

Economic Growth Is Increasingly Flowing to Capital

One of the biggest economic changes in recent decades is that more income is going to capital instead of labor. Labor income means wages and salaries. Capital income includes profits, dividends, stock growth, and investment returns.

Wages and salaries now make up the smallest share of economic output since records began in 1947. Meanwhile, more of the growth is going to investors and business owners instead of workers.

This helps explain why the stock market can go up even when many people still feel frustrated about their finances.

When corporate profits go up, shareholders benefit. But if workers don’t get a fair share through higher wages, many families won’t see their finances improve.

The Growing Gap Between Wall Street and Main Street

The gap between investor success and worker experience helps explain why people often feel uncertain about the economy, even when the numbers look good.

Many Americans judge the economy by whether they can afford things like housing, food, gas, and health care. Stock market returns don’t affect the two out of five households who aren’t invested, and for most people with small investments, the impact is minor.

When more of the economic growth goes to shareholders instead of workers, the stock market can look strong while many families still struggle.

The Bottom Line

People often treat the stock market as a scoreboard for the American economy, but more and more, it’s measuring something else.

Today, workers get the smallest share of national income since records began after World War II, while more of the gains go to investors and owners. That’s why stock prices can rise even when many families feel financially stressed.

That’s why, now more than ever, the stock market is a poor indicator of how the real economy is doing. If you want to know how Americans are really doing, focus on wages, affordability, financial security, and whether everyday workers are sharing in the country’s economic growth.

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