Is the Stock Market Reflecting the Real Economy?- By: NEIL S. SISKIND

By: Neil S. Siskind

The intuitive answer to this question, the obvious answer, as asset prices continue to climb while many businesses and job growth and GDP decline, as certain economic data points show an increasingly challenged economy, as no known virus vaccine is on the horizon, and as flu season looms, would seem to be “no”, that the significant rise in large-cap company stock prices is due, primarily, to a Fed put, excessive liquidity, a low discount rate, temporary behaviors due to the pandemic, and a temporary flight to quality due to fear and uncertainty. And five years ago, I may have agreed.

But the Internet, the low cost of capital, and the rapid acceleration of behavioral changes, secular growth trends, and structural change1 (with the structural change having been, and continuing to be due, in large part, to the Internet, the low cost of capital, misallocated capital, and the pandemic) over the last five years- and the last five months- have changed things.

It’s not only the stock prices of the largest public companies that are growing (referring mostly, though not exclusively, to technology stocks)- it’s their revenues, and earnings, and market shares- to the detriments of most of their smaller competitors, public and private.

As smaller competitors struggle through the pandemic, and dwindle, and as the Internet and a low cost of bank capital and inexpensive public market financing options allow the largest companies to easily and affordably borrow money and scale ever-larger through a combination of price wars, loss-leaders, advertising blitzes, talent acquisitions, research and development, patent acquisitions and protections, stock buybacks, business acquisitions, and online marketing programs, to dominate their respective industries and sectors, fundamentally, the few survivors are more and more valuable, especially those survivors that are participants, and leaders, in industries experiencing secular growth (offering them the opportunity to vastly scale their respective businesses)- such as certain areas of technology- and, particularly, where that secular growth is part of the cause of structural change1 in and to the overall economy.

With large companies getting larger and smaller competitors failing, the ever-higher stock prices of certain large public companies probably are a direct reflection of the economy; they reflect the economy as it evolves to one based on “maximum scale”, where a, relatively, small number of well-funded large companies are using capital and technology to grab all of their respective industry’s or sector’s market share- leaving just a few remaining players in every industry or sector. Among other things, great “scale” in industries or sectors means less competition for (and, thus, lower costs of) labor and more price leverage over suppliers and distributors, and, thus, the potential for higher than presently-expected earnings (and, of course, it can potentially create exposure to antitrust investigations and actions).

So, while many thousands of businesses’ fundamentals and the overall economy may be weak, with wage growth, GDP growth, and job growth all weak, and many large-cap companies’ stock prices (referring, mostly, to technology companies) may be slightly out of whack with either their own fundamentals (based on their own historical price-to-earnings and/or price-to-sales ratios) or with price-to-earnings and/or price-to-sales ratios of smaller public companies in their respective sectors, this does not, per se, mean that the stock market is divorced (or, decoupled) from the economy. In fact, it’s just the opposite- the stock market is explaining the functioning and transition of the economy. Rising large-cap company stock prices are about more than monetary stimulus, the discount rate, the real yield, and the pandemic; those stock prices, at present levels, in many cases, are also justified by, and correlated with, sustainable economic evolution and secular trends and structural change1 in and to the real economy from which such companies are, and, in many cases, will continue to be great beneficiaries.




  1. I use the term “structural change” in this article. The context determines the kind of structural change to which I am referring. One kind of structural change we are experiencing, and to which I refer, is to our behaviors- long-term changes in and to the way we work, shop, socialize, and get entertained, with the expansion of, and our growing reliance on, digital services and related hardware. The other kind of structural change we are experiencing, and to which I refer herein, is change to the overall structure and operation of the economy, where we have winners and losers in industries, such that large companies survive and control prices and labor in their respective markets while smaller businesses are less and less prevalent or relevant in any given industry. Having just a few large companies in each industry changes the structure of the economy from one based on small businesses and competition to one grounded in large corporations, less competition, fewer employment options in any given industry for labor, and fewer retail options for consumers (and fewer supply sources for businesses). This latter structure has developed over the past decade, and continues to develop, and will continue to develop to an even greater degree moving forward because of the Internet, inexpensive debt capital, investor hunt for yield, low inflation and disinflation, and the pandemic.



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About the Writer

Restructure and reduce business and personal debts; distressed debt investments and transactions:

Neil Siskind is: President of The Siskind Law Firm,, focused on debt negotiation and restructuring, debt collection, debt investing, product investments, trademark licensing, and product distribution; Founder & Chairman of The Fatherhood Assignment™, a think tank and advocate for children with absentee fathers; Founder of the global charity marketing initiative, Caring is Free®; Founder of National Fatherhood Day™; Owner & Conservator of The Neil S. Siskind Nature Preserve, over 9 acres of conserved waterfront land along New York’s majestic Hudson River; and author of The Complete Guide To The Ways To Manufacture & Sell Your Products. On December 11, 2017, in his article The Yield Curve Speaketh: Why Stocks Might Crash in Early 2018, Neil Siskind accurately predicted the February, 2018 stock crash, the largest single-day point drop in the Dow Jones Industrial Average’s history. All the stock indices are down approximately 6% for 2018. In his September 26, 2018 article, Lots of “Bull” In The Bull Market: Let’s Look At What’s “Really” Growing, Neil Siskind explained that, despite Wall Street’s bullishness, the economic data and stock market underpinnings were in decline, and the economy and stocks were at imminent risk. By the closing of markets on October 23, 2018, the S&P 500 had fallen approximately 7%, with October being the S&P’s worst month since August 2015 (and December being the S&P’s worst month ever), the Nasdaq continues to have its worst month since 2016, and is down approximately 8% from article publication, and the DJIA is having its worst monthly performance since 2008. In 2018, Neil Siskind coined the phrase “synchronized global slowth™” (or “synchronous slowth™”) to describe the occurrence or condition of multiple emerging market and developed market economies commencing a downward trajectory of economic and GDP growth, or actually contracting to a point of slow, stagnant, or negative economic and GDP growth, simultaneously. If you are in need of office space in South Florida, contact Neil Siskind about space availability at The Siskind Executive Office Complex in Boca Raton, FL.

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