Today, Explained - Is the stock market bull?

Episode Date: September 3, 2020

Vox’s Emily Stewart clears up the mystery of the market, and Ella Nilsen offers an update on the stimulus that has collapsed into stalemate. Transcript at vox.com/todayexplained Learn more about your ad choices. Visit podcastchoices.com/adchoices

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And the stock market starts to react. We are looking at another day of extreme volatility. And this week alone, stocks have now wiped out nearly $3.5 trillion in value. Wall Street is about to close any minute now. The Dow collapsing around 1,900 points today. Its worst single- day loss ever. Stocks moved back to lows for the day. Toward the close, as President Trump said, coronavirus may be an issue through July or August.

The stock market, like every other part of American life, took a turn for the worse. But then, a few weeks later, the stock market started to reverse those losses. And things started to get good. The markets closed lower Friday, but all three major indexes posted double-digit gains last month. And then things started to get really good. Wall Street continued its upward climb to record heights Friday, with technology's outsized performance leading the way. And things have gotten to the point where, for at least some people out there,

the stock market's never been better. Apple, above 467.77, making it a $2 trillion market cap. What a week for Tesla. Shares are up a staggering 26% this week. Jeff Bezos, just yesterday, made $13 billion. But a lot of people seem to be confused. We've had listeners write to us asking, businesses all over my city are shutting down, the economy is a mess,

why is the stock market surging? And of course, on the day we decide to make an episode about it, the stock market appears to be taking a dip. But the trend is certainly upwards. And that's a trend Emily Stewart has been writing about for Vox. Your Facebook, Apple, Amazon, Microsoft, and Google, which is parent company for that, is Alphabet. They've all been doing spectacularly this year. And then the major stock indexes.

You hear Trump talk about the Dow Jones Industrial Average a lot. And the Dow is above 28,000. That's a big number. I mean, thinking that when Trump became president, I remember sitting at my old job in my old office, joking about when the Dow was going to pass 20,000. And now we're at 28,000. The stock market is really, really going up. But why? I know my dude, Kai Rizdal, would say, the stock market is not the same thing as the economy. And I think we're really seeing this great disconnect.

We never know exactly why the market does what it does, but there are a few things that have happened. One thing that happened back in March is that the Federal Reserve, the central bank for the United States, took some really big measures that really propped up markets. The Federal Reserve is cutting interest rates today amid fears about the coronavirus outbreak. They started buying a bunch of securities. The Fed, first of all, saying that it will purchase treasuries and mortgage-backed securities, quote, in the amount needed. Call that open-ended QE. In a way that really put some money and some liquidity into the market and really kind of staved off what could have been a financial meltdown. At the same time, like I said before, tech stocks

have done really, really well and big tech stocks. And so when you look at something like the S&P 500, if you got rid of the big tech stocks, the S&P wouldn't be doing that great. You know, some people will tell you that the stock market right now is doing well because it's supposed to be a leading indicator, which means the stock market is supposed to start to move before the economy. And so if you think the stock market is doing well now because the economy is going to do well in the future, then this makes sense to you. Do I think the economy remarkably in six months, three months is going to be doing awesome? No.

But like that's sort of the take that we're having right now, at least from some corners that say the stock market is indicating that the economy is going to get a lot better. Okay, so tech stocks have been sort of leading the charge because tech companies have been doing really well during the pandemic. Investors have confidence in the future of this country. The interest rates are super low and the Fed is buying a bunch of bonds. You've mentioned Donald Trump a few times. How much credit does the president really deserve here? Donald Trump, when the stock market's doing well, would like you to think that it is all attributable to him. And when the stock market's not doing well, it has nothing to do with him. But he really has tied his presidency to the stock market. It's always nice to begin by saying the stock market is up again. We just set another record. We have another big record stock market

day and another record in the stock market in the history of our country, which to me means jobs. We just hit the highest number in the history of our country, which to me means jobs. We just hit the highest number in the history of the stock market. How much of it has to do with him? Like, I mean, some of it does. Trump has had very market friendly policies back in 2017. He signed that giant tax cut bill that was really great for rich people and for corporations. He has been good for the stock market now. Has he been the only reason the stocks are doing anything? Of course not. Part of it is, yes, politics. Part of it is market-friendly policies. But it's also the day-to-day headlines. Apple has really good

earnings. That's good for the company. Ultimately, stock prices are supposed to be tied to future expectations of earnings for a company. So stocks move for a variety of reasons. Trump has given investors reason to be confident, but he's not the only reason that the market moves in any given moment. We've been hearing President Trump take credit for the stock market for like four years. But strangely, at the Republican National Convention, it didn't seem to be one of his biggest stocking points. I mean, going into the convention, I assumed they're going to try and find a way to get the Dow personified on stage. And then it just wasn't really there. He talked about it on Monday after the roll call for a little bit. And then during his acceptance speech for the nomination,

he kind of name-checked the market and then moved on. Take a look at what's happening with the markets. Take a look at your 401ks, which you probably do every hour. Take a look at your stocks. We're very close to breaking the record, and NASDAQ has already done it. You know, NASDAQ has broken the record, I think, 16 times already.

If I had to take a guess, it's not quite the vision that Republicans wanted of their party, whether or not it's actually what they value. When you watch the Republican convention, it seemed like what they wanted to talk about more was how Donald Trump is not racist. Also, crime is on the rise.

It just wasn't high on the agenda. Right. We touched on this in our RNC recap episode last Friday. Clearly, the game plan was to try and chip away at Black voters and women who are inclined to vote for Biden. Are those Black voters and women not day trading, though? How many Americans are invested in the stock market? Well, I mean, yeah. If you look at the statistics, a small majority of Americans have money in the stock market. Now, does that mean they have a giant stock portfolio that they're day trading? No. But a lot of people do have money in a 401k,

a pension, things like that. And there are a lot of ordinary people who are investing in stocks right now. I mean, with apps like Robinhood, which right now is kind of the hot app where all of these day traders are flocking to. A lot of people also have been really bored in quarantine and have been playing in the market and investing. And, you know, there's an argument that the market should not only be for the wealthy, that ordinary people should be accessing it and should have the opportunity to access it, understanding what the risk is. So, like, yes, there is a benefit for a lot of people. But, like, there's a difference between my Apple stock went up and, like, hey, I don't have a paycheck.

In the long term, the economy will improve. I think what's happening right now is the market seems to indicate that the economy is going to improve pretty quickly. I would argue that part of that is an assumption that Congress will do more in terms of fiscal stimulus, a follow up to the CARES Act that President Trump signed into law back in March. That's a pretty big assumption, but maybe the market will be right. After the break, all those people who can't afford to play the market because they're unemployed and living benefit check to benefit check. Where is that stimulus? I'm Sean Ramos for them.

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with promo code EXPLAINED at checkout. That's A-U-R-A-Frames.com, promo code EXPLAINED. This deal is exclusive to listeners and available just in time for the holidays. Terms and conditions do apply. Ellen Olson, you cover politics at Vox. I mean, we were talking a lot about this stimulus that Republicans and Democrats were fighting over for a while, and then it just kind of disappeared off the radar.

What happened to it? Nothing, really. Oh, is that why it disappeared off the radar? Yeah. I mean, the word that people have been using to talk about stimulus negotiations has just been stalemate. Would you be willing to call my speaker and say you want to go back to the negotiating table today? Can I tell her that you suggested I call her right after the hearing? Yes, yes, yes. Done. I will call her right after the hearing? Yes, yes, yes. Done. I will call her right after the hearing. Thank you, Chairwoman. There was recently a call between Treasury Secretary

Steve Mnuchin and House Speaker Nancy Pelosi. But for the most part, Congress has been on summer recess. And in that time, you know, we've had the conventions, the presidential race has heated up, and congressional leaders and White House officials haven't really been talking that much about coronavirus stimulus. And you mentioned that the Treasury Secretary, Steven Mnuchin, had a call with Speaker of the House Nancy Pelosi. What did they talk about, do we know? They talked about where Republicans and Democrats are at and how much money either side would be willing to spend. Democrats passed a $3 trillion bill way back in May, and Pelosi issued a statement, you know,

saying that Democrats are willing to go down to $2.2 trillion, but that is, like, their final threshold. Republicans right now are going between, you know, passing a $1 trillion bill or a $1.5 trillion bill, but they don't want to go any higher than that. So basically, Pelosi said this phone call made it clear that Democrats in the White House still have this huge gap between where they are on this bill. She's saying we're already trying to reach a compromise and our compromise even is too much for Republicans to negotiate on.

So the thing they're fighting about now is the thing they're fighting about a month ago, which is just how much money to spend on this thing. Yeah, it's how much to spend. But I also think something that they disagree on is where to spend the money and who to give it to. Republicans are focused on passing, you know, another round of small business loans because that's a program that was pretty popular in their conference. 500 billion total dollars in the PPP program,

5 million loans you made that helped 85% of the small businesses around this country, 51 million jobs. Democrats are really focused on passing a lot of money for state and local governments. The state governments are being forced to cannibalize their rainy day funds. They're cutting essential services and they're laying off workers. According to the Department of Labor, one and a half million state and local government workers have lost their jobs since February. Many of them have been spending a lot to sort of combat coronavirus in their individual states because we should note that President Donald Trump has kind of foisted federal responsibility

for a lot of this stuff onto the states. So throughout the spring and summer, states have been spending, spending, spending money trying to do testing, trying to pay their portion of unemployment insurance, trying to get schools back. So these state governments and local governments have been spending a lot of money without much aid from the feds. And it's really unclear if they're going to get any of that aid quickly. Is it dead or is it just stalled? It's not dead. And Congress is going to come back on September 8th next week to go back into session. And so one would assume that talks would start then or hopefully before then. But yeah, I mean, I think that the ideal scenario is that leadership would have hammered out a deal before Congress goes back so that they have something, you know, ready to vote on. And we should note here that the enhanced unemployment benefits have been expired for a while. You know, there are a lot of people that are really struggling to pay the bills. There have been some executive orders on,

you know, moratoriums on evictions and things like that. But all in all, Congress has not appropriated new money. And at this point, Democrats and Republicans cannot agree on a number. Are they just going to call it at some point and be like, hey, we couldn't reach a deal. It's over. We're not even going to talk about it anymore. There's an election coming. We've got other things to think about. Well, the thing that I'm wondering is, so Senate Republicans are supposed to go back on the 8th as well. And from recent reporting, it sounds like what McConnell is going to do is going to try to force a vote on an even smaller bill, a $500 billion bill. Which, of course, Democrats say is not nearly enough for the purposes of what is needed.

So I think that there's sort of going to be some trying to force a vote tactics. This will fail. Republicans will accuse Democrats of stalling, which, you know, maybe will help them in an election year. But yeah, I mean, I think maybe the thing that will spur people to do something is like if their poll numbers get really bad. And they haven't yet? Well, the whole dynamic with Senate races this year has been that Republicans had been worried about Trump's approval rating and Trump's status in polls, and especially in battleground state polls. That's what they're looking at.

Joe Biden now leading President Trump in all six battleground states. And for a lot of vulnerable senators like Susan Collins of Maine, you know, the Paycheck Protection Act and stuff that they did in the last coronavirus package is a big part of their argument for reelection. So right now, battleground polls between Biden and Trump appear to be tightening a little bit. Republicans are feeling like they are a little bit more competitive than they were maybe in late spring, early summer.

And so right now, I feel like, you know, there might sort of be this idea of we can blame the Democrats for this. We can kind of buy ourselves a little bit of time. But that also might just make all of this worse and all of this worse for both Republicans and Democrats in the long run. Could the president take some more executive action? I know he did three or four things about a month ago. The president restoring unemployment benefits, minimizing evictions, suspending interest on student loans and enacting payroll tax cuts. Could he do more now?

At the end of the day, Congress is the body that appropriates money. Trump can't just conjure money out of thin air. You know, he can sort of direct where it goes through the federal government, but Congress is the one that has to appropriate new funding. And so without this new funding, and especially as we're going into winter, where, you know, people are already going back to school, we're already seeing cases spike, especially at colleges and universities. Outdoor dining that we've had that sort of kept restaurants afloat is going to have to move indoor for winter. There are all these other things that are happening. Flu season is going to happen.

So just baseline, like not approving money to even just prepare for the next few months is concerning. But at this point, you know, they're trying to get money approved to sort of like clean up the mess of the summer. So strategically, that puts you way behind, you know, when the U.S. is sort of trying to deal still with this big crisis that isn't going away. In a way, the economic crisis has sort of had a cushion because Congress had passed this $2 trillion CARES Act back in March that had the expanded unemployment insurance, the $600 a week. And so a lot of people were able to kind of exist on that. It was actually, you know, a boost to some people's wages. So the economic fallout hasn't been as bad because Congress acted quickly and decisively and passed this $2 trillion bill back

in March. But because we now have this, you know, months-long lag where there's no new money being passed, I think that the economic fallout could be much worse down the line. Thank you. you