The market turmoil caused by President Trump’s 2025 tariff announcements has experts reassessing a longstanding maxim: “The stock market is not the economy.”
Brenton Harrison, a certified financial planner, founder of New Money New Problems, and a member of Investopedia’s Advisor Council, pointed to reasons to rethink the dictum. Many investors now trade for themselves via apps like Robinhood Markets Inc. (HOOD) and other platforms, which has “increased Main Street’s interest in Wall Street,” he said. “By having skin in the game, Main Street investors are more attuned to activities on Wall Street that impact their daily lives and portfolios.”
So, is this part of a narrowing of the supposed gap between Wall Street and Main Street? We suggest possible answers below.
Key Takeaways
- The point of noting that “the stock market is not the economy” is to stress that high stock prices don’t necessarily mean the economy is strong, nor does market turmoil mean it is weak.
- The stock market reflects expectations of future profitability of publicly traded companies, which is only loosely connected to how the average person experiences the economy, usually through prices, the availability of jobs, and wages.
- Still, events of the mid-2020s have led some to suggest that the phrase is perhaps less true than before, especially in crisis times.
Market Signals and Economic Reality
The notion that the stock market isn’t the economy is decades old. Kai Ryssdal of “Marketplace” popularized the phrase just before the 2008 Financial Crisis, emphasizing that one shouldn’t confuse what’s happening in one with the other. The stock market tracks the value and expected future earnings of publicly traded companies, while the economy comprises all U.S. production, consumption, employment, and commerce.
Ryssdal still stresses the point, though in a manner that’s somehow both blunter and more nuanced. For example, in March 2025, he seconded a Bluesky post by noted economist Paul Krugman, who repeated the phrase three times, then wrote, “Nonetheless, holy sh*t,” citing market fears about Trump administration tariffs.
What the Phrase Means
As Krugman put it a few years ago, “The relationship between stock performance—largely driven by the oscillation between greed and fear—and real economic growth has always been somewhere between loose and nonexistent.” This means, as a March 2025 Economic Policy Institute report put it, “More often what is happening to stock prices gives us no insight into the wider economy.”
The market is also not very representative of the U.S. economy:
- The main index, the S&P 500, has just 500 companies out of America’s 33 million businesses.
- Data noting that over 60% of Americans own stock can be misleading, since those in the top 10% by wealth own 87.2% of equities and mutual fund shares.
- S&P 500 companies earn almost a third of their revenue overseas.
Important
More American families than ever own stocks—more than 60% own stocks either directly or indirectly through their retirement plans, but only about a fifth own stocks directly. Meanwhile, the richest 10% of American families own nearly 90% of all stocks.
Still, some argue for using the market’s ups and downs as an economic barometer. For example, during his first administration, President Donald Trump invoked a rising stock market as evidence of his economic stewardship, suggesting policies doing the opposite should be abandoned.
That would mean a “stock market veto,” largely by the wealthiest Americans (and not a few foreigners). Policy shifts from the New Deal to the Affordable Care Act (ACA) in 2010 and beyond have caused market drops. Yet, regarding the ACA, the market reaction wasn’t even a good barometer of how healthcare stocks would fare. For example, we calculate that despite an initial price drop, the Health Care SPDR ETF (XLV) rose about 387% between the ACA’s passage and April 2025—higher than the S&P 500 index‘s impressive 354%.
Updating the Relationship Status
There’s a saying among investors and analysts that in a crisis, everything is correlated, which means that everyone is selling everything. In this context, perhaps it’s helpful to add that, while in ordinary times the stock market does not reflect the economy, in times of crisis both are greatly affected.
For example, Wolfers said there’s good reason to take heed of the market’s reaction to Trump’s tariffs. The turmoil in equities and bonds is evidence that Wall Street isn’t buying Trump’s argument that his tariffs, which would fundamentally restructure global trade, will lead to greater profitability and a more robust American economy, he says.
“Ordinarily, I have a lot of sympathy for the statement that the stock market is not the economy,” Wolfers said. “But I think this time it’s more central to understanding what’s going on in the economy.”
Crucially, plunging markets can hit the economy by damaging consumer sentiment. Even though most stocks are held by wealthier families, when markets and the value of 401(k)s are falling, this dominates news broadcasts, Main Street takes notice, with people often quickly cutting their spending, which in turn slows economic growth.
“This month’s market activity shows that companies and governments recognize how fast consumer sentiment can change an economy,” Harrison said. “In past times of turbulence—the Great Recession, the early 2000s tech bubble—some of the market forces that led to a crash were in motion for years before Main Street was aware of them. …Recent market events have shown that the time between a Wall Street activity and Main Street’s reaction to it has whittled down to days.”
The Bottom Line
“The stock market is not the economy” is a reminder that stock market troubles don’t necessarily lead to slowing economic growth—hence economist Paul Samuelson‘s joke in 1966 that “Wall Street indexes [have] predicted nine out of the last five recessions.”
That said, markets can influence the economy. They help businesses fund growth, offer investments for millions of Americans, and perhaps, as Wolfers suggests, provide important insights about certain policies. The relationship is thus more nuanced than screaming headlines about stock market crashes might lead one to believe.