On Tuesday, the S&P 500, a measurement indicating the financial success of several large companies listed in the stock market, posted record highs as the market closed. Tuesday’s news means these large companies have collectively recouped their financial losses incurred since the pandemic was declared in March.
To some, it may seem counterintuitive that any company could flourish during a deadly outbreak that’s shuttering local economies around the country and, in turn, forcing the U.S. unemployment rate to hover above 10 percent. Critics have long argued the stock market is a poor indicator of the country’s overall economic performance, and Tuesday’s resounding stock market success juxtaposed against widespread economic despair brought that reality into stark relief.
Early Tuesday morning, far before the markets closed, Donald Trump was already claiming credit for what he insisted was an economic resurgence, tweeting “Jobs are flowing, NASDAQ is already at a record high, the rest to follow.” But in reality, the Labor Department reported job growth slowed during the month of July, as several states experiencing spikes in COVID-19 cases were forced to close local businesses again to curb the spread of the disease.
The 1.8 million jobs added in July reflected those closures, marking a significant decrease from the 4.8 million jobs added in June. Amid growing concern over new coronavirus hotspots, the investment firm Morgan Stanley recently warned of a “significant risk for a reversal” in hiring numbers for the month of August. More than 55 million Americans have filed for unemployment benefits since March, according to the Labor Department.
So when Trump claimed in his tweet that “jobs are flowing” and that he’s building “an even greater economy than it was before,” his choice to root those claims in the success of the stock market shows he’s really only measuring the success of some of the world’s largest companies ― not the majority of American businesses, which are largely suffering under the pandemic.
“What’s driving the returns in the S&P 500 right now are the big tech companies. So Apple, Microsoft, Google, Facebook and Amazon,” said Amanda Fischer, policy director for the Washington Center for Equitable Growth, a research and grantmaking organization.
Fischer said the S&P 500 is a poor measurement for economic health because the success of these uber-rich corporations skews the data.
“The five I named have seen returns on average of 35 percent growth in their stock price, compared to 5 percent losses for the remaining 495 stocks in the stock market,” she said.
“Obviously, the tech companies are doing well, because everyone’s working from home, and we’re ordering our groceries and our medicine online.”
The disparate business outcomes are clear even among the large corporations listed on the S&P 500, but the inequality is far more pronounced when you factor in the race of business owners and expand the pool of outcomes beyond some of the wealthiest companies in the world.
A recent report compiled by the New York Federal Reserve found more than 40 percent of Black-owned businesses were forced to close down between the months of February and April. A similar study conducted by the University of California, Santa Cruz, found the percentage of Latinx-owned businesses lost during that span was roughly 32 percent; the number of Asian-owned businesses lost was roughly 26 percent; and the number of white-owned businesses lost was roughly 17 percent. The overwhelming majority of those businesses have no connection to the S&P 500.
Fischer, the economic policy director, said the unequal dispersal of government-backed loans at the outset of the pandemic is largely responsible for the disparate business outcomes, and warned the racial inequality in particular could have a long-lasting impact.
“The big banks did a worse job than the small banks at getting the PPP money out,” she said, referring to the loan program established for small businesses earlier this year. She added that big banks are more accommodating to large businesses than small ones, and because Black and Latinx business owners are disproportionately based in large cities with large banks, that ― in addition to outright racism ― led to a large number of business closures in these communities.
Black entrepreneurs use business ownership to narrow the wealth gap between themselves and their white counterparts, Fischer noted.
“We know that the wealth gap between Black and white entrepreneurs is a lot narrower than the wealth gap between Black and white workers,” she said. “So if we lose a generation of Black entrepreneurs like this, it’s going to have a lot of consequences.”