• Christopher Hall

Why share markets are no longer the Pulse of an Economy

Gone are the days when a country with a strong share market indicated that the country itself was economically strong. Decades of globalisation have disconnected the world’s largest share markets as indicators of the countries and their economies they once represented. These share markets are now dominated by companies that have little to do with the ‘real world’ economy that the average individual operates in.

Persistently Bullish:

The United States of America has the strongest share market in the world. Since the GFC in 2009 the US share markets have barely taken a breath or looked back. Any pullback has been short-lived, only to be eclipsed by new highs. This behaviour is typical during the bull market since 2009, which was the longest in history until CV-19 took the world economy into lock-down.

The below chart shows the S&P 500 over the last decade, with each pull-back being exceeded by a new high shortly afterwards - the current drop in CV-19 is yet to be determined.

Only a Handful of Real Bullish Companies:

When looking further into the US share market we can see that the gains are not evenly spread, or even spread much at all.

In most bull markets over the last century or so, when the share market rises, it is a ‘high tide lifts all boats’ event. This means that prosperous times for most of the economy are shared to all areas of the economy, just in varied amounts.

However, this market rise has been more concentrated that almost any other bull market before. Most notably, the top US technology companies have dominated the market rise and dragged the indices higher.

These leading companies are:

- Facebook

- Apple

- Alphabet (Google)

- Amazon

- Netflix

- Microsoft

Strung together, the first letter of each of these companies makes the acronym FAAANM.

Below is the chart of the FAAANM shares and the indices since 2015. The blue line shows that the FAAANM shares have strongly outperformed the rest of the share market.

Additionally, if the FAAANM shares were removed from the US S&P 500 indices (red line), the US share market would resemble the rest of the global share markets (yellow line).

US Stock Leaders Disconnect

Taking the leading US stocks out of the market paints a clearer picture of the state of the US economy.

While FAAANM companies do have a lot of employees world-wide, and in the US, the breadth of the rest of the US market is a more accurate reading of how the other US companies, and the US economy is operating.


Most economists would say that the current state of the US economy in the peak of the CV-19 pandemic is much further from its ‘all-time best’ than the chart of the S&P 500 would have us believe.

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