July 2024
Like many middle-aged Americans, I find myself increasingly shaking my head at the absurdity of some of the headlines that cross my screens. Is this just a rite of passage as I quickly approach the age of 50? Am I now shaking my head the same way my parents did when I watched The Jerry Springer Show and the way their parents did when Elvis was gyrating on stage? Perhaps, but I suspect something else is afoot.
A few weeks ago, business headlines were dominated by a fellow named Keith Gill, a.k.a. Roaring Kitty, who gained internet stardom and wealth several years ago as an unemployed financial analyst whose viral videos helped create the meme stock craze in GameStop. He has been in hibernation for years as most of the meme stocks have melted and left individual investors with massive losses. Yet the financial media really wants us to know that he’s back, because Roaring Kitty recently tweeted a picture on X (formerly Twitter) that sparked a ~400% rally in GameStop, a company with a stellar record of declining sales and negative free cash flow. If you are curious as to what sparked this $7bil gain in market value — it was a drawing of a guy leaning forward while playing a video game (thereby giving the impression that he is taking the game seriously now).
Of course, this is just one example of the nonsense that often fills our airways. A business day just is not complete without hearing who Elon has insulted or which oddball cryptocurrency has recently made one lucky soul a new millionaire. Many days, the news cycle feels like The Jerry Springer Show — plenty of volume, conflict and shock value sprinkled with an occasional giggle. Most of the time, I feel dumber for having been subjected to it, just like Jerry typically left me when I was a teenager.
One might wonder, what is the big deal? I would speculate that we are starting to see the consequences of this unserious “news” pollution. To further complicate matters, “bad” information captures more eyeballs than “good.” Hence, media companies and social media algorithms have a profit incentive to tell you the “bad” news, which adds to the anxiety underlying the collective conscience. Lamentably, while some viewers turn to the “news” for entertainment, many rely on it for information that can affect life-decisions, such as buying a home or changing jobs.
The results are in …
The scope of the problem hit me like a ton of bricks when I recently read about a Harris poll conducted in mid-May that surveyed 2,119 U.S. adults about the condition of our domestic economy. Here are a few of the highlights:1
- 56% of respondents believe the U.S. is in a recession;
- 49% believe the S&P 500 is down for the year; and
- 49% think unemployment is at a 50-year high.
I am speechless but will take them in order. Under the traditional definition, a recession is defined by two or more consecutive quarters of negative GDP growth, which has not occurred in the U.S. since the Great Financial Crisis. Following the pandemic, the National Bureau of Economic Research (NBER) updated the traditional definition to label a recession as “a significant decline in economic activity that is spread across the economy and lasts more than a few months.” By this rationale, the last U.S. recession lasted only two months — from February to April 2020. Regardless of which interpretation you prefer, the U.S. is not in one. In fact, the U.S. has been growing at an above average rate both prior to and since the pandemic.
Even more confusing, 49% of respondents thought the S&P 500 was down for the year. Perhaps you could chalk this misconception up to most Americans not owning stocks, but recent Gallup data indicates 61% of households hold them — the highest proportion since 2008.2 At the time of the survey (mid-May), the market was up 10% on the year. As of this writing, the S&P 500 has hit 30 new all-time highs during 2024! Not only is the market going up, but it is also doing so in a remarkably smooth fashion. The S&P 500 has not experienced a drop of more than 2% in 370 trading days — that is the longest streak since headier days preceding the Great Financial Crisis.
Yet another remarkable response from this survey was the population’s view on unemployment. Half of the respondents believed unemployment is at a 50-year high! Over the past 50 years, the unemployment rate has averaged 6.2%, a far cry from current levels of 4.0%. As for the worst of times, the unemployment rate peaked at 14.8% back in April 2020. If you exclude the pandemic, the 50-year high was set back in December 1982 when the jobless rate touched 10.8%. In other words, the U.S. unemployment rate has been hovering around generational lows (the low point being 3.4% in April 2023).
Reality (TV) Check
Why are all these survey results so separated from reality? Certainly, there is a segment of the population who may feel detached from the broader economy. According to Statista, roughly 1/3 of U.S. households have a combined family income of less than $50k per year. One can imagine that many of these individuals are busy trying to make ends meet and thus are uninformed about the broader economy, or alternatively, may always view it as “bad” if their family is struggling. In addition, inflation of recent years has added to the economic anxieties of many even at higher income levels. When a significant portion of one’s income goes to food and energy or people “experience” that inflation on a near daily basis, it can make “positive” economic stats seem irrelevant. That doesn’t mean there aren’t two sides of the coin, though.
Over time, without discussions that balance the good with the bad and even indifferent, many become suspicious of all news as revealed in a recent Harris poll in which 64% of Americans (roughly equally split between Republicans and Democrats) indicated skepticism over economic news. Skepticism goes hand in hand with outright distrust as found in a Bankrate.com survey back in 2021 when 56% of investors said they felt that the stock market is rigged against them.3
Trust is a rarely discussed, yet extremely important concept for investors. Trust is the backbone of U.S. markets and a significant contributing factor to our country’s economic prosperity over the past century. It is the reason why investors from around the world hold our currency and buy our government’s bonds. It is the reason why our companies trade at higher valuations than those in emerging markets. It is why people invest in themselves and their futures. Unfortunately, the data shows we are slowly letting that trust slip away.
Jerry’s Final Thought
Devoid of trust in the information we receive, we become ill-equipped as a country to handle complex economic problems facing us. Effectively tackling nuanced issues like the U.S.’s high inflation, elevated national debt, or foreign trade seems like a pipe dream if we aren’t aware of basic facts like “the market is up.” If public distrust goes unchecked, participants in our markets may withdraw as a protection mechanism, like bank runs or sovereign debt crises of years past. There is no need for Americans to meander down that path. A simple start would be consuming less sensational news. (I, myself, am a fan of Reuters.) I’m an optimist, but I believe we can become more engaged as a society, and collectively change the channel from our modern-day Springer show.
All market data is sourced from Bloomberg unless otherwise noted. 1. https://www.theguardian.com/us-news/article/2024/may/22/poll-economy-recession-biden. 2. https://news.gallup.com/poll/266807/percentage-americans-owns-stock.aspx. 3. https://www.bankrate.com/pdfs/pr/20210324-march-fsp.pdf.