, Columnist
The Rally in Equities Deserves More Appreciation
Dismissing the rise as helping only shareholders is misguided.
A rising tide lifts all boats.
Photographer: Herbert Felton/Hulton Archive/Getty ImagesThis article is for subscribers only.
Pessimists say the equity market’s rally is produced by nothing more than stock buybacks. The pickup is enriching shareholders, doing little for economic growth, the thinking goes. But this criticism overlooks the real economic benefits of rising share prices.
Conventional wisdom suggests that the stock market has two main channels to the economy. First, rising share prices help reduce the cost of capital for a company and that, in turn, boosts business investment. Second, higher stock prices increase the wealth of households, which can stimulate consumer spending. Third, and less widely understood, stock markets can be an important aggregator for information and macro uncertainty.