I have long been saying that the US stock market seems to have almost no connection to the general state of the economy but instead seems mainly related to how the very wealthy are doing and this week brought more evidence of that. In March, the market plunged as the country shut down, which made sense. But since then the market has risen again, thanks to the actions of the government and the Federal Reserve to prop it up, even though things are very dire for most people who are suffering from loss of jobs, income, health insurance, and facing evictions.
On Tuesday, the market reached a new record high, breaking the previous record set in February just before the pandemic hit. The new highs were propelled by just six major tech companies: Amazon, Netflix, Microsoft, Apple, Facebook, and Google.
The Economic Policy Institute has issued a new report that provides some very telling information in two graphs.
One graph shows how closely the stock market tracks the average CEO compensation
The other graph shows that the ratio of the average CEO compensation to average worker compensation also tracks the market.
It is truly obscene how CEOs have cranked up their compensation from just 20 times that of the average worker in the 1970s to over 300 times now.
I know that correlation is not causation but these graphs add more evidence to the thesis that the stock market is more a reflection of the state of finances of CEOs and the wealthy than of the conditions of the general economy.