Stocks are soaring. So is misery. Should we care?

On Aug. 18, the S&P 500 stock index hit a record high. The next day, Apple became the first U.S. company in history to be valued over $2 trillion. Donald Trump is, of course, touting the stock market as proof that the economy has recovered from the coronavirus; too bad about those 175,000 dead Americans, but as he says, “It is what it is.”

But the economy probably doesn’t feel so great to millions of workers who still haven’t gotten their jobs back and have just seen unemployment benefits slashed. The $600 weekly supplemental benefit has expired, and Trump’s replacement is basically a sick joke.

Even before the aid cutoff, the number of parents reporting that they were having trouble giving their children enough to eat was rising rapidly and will surely soar in the weeks ahead. And we’re also about to see a wave of evictions, both because families are no longer getting the money needed to pay rent, and because a ban on evictions has expired.

But how can there be such a disconnect between rising stocks and growing misery? Wall Street types, who do love their letter games, are talking about a “K-shaped recovery”: rising stock valuations and individual wealth at the top, falling incomes and deepening pain at the bottom. But that’s a description, not an explanation. What’s going on?

The first thing to note is that the economy, as opposed to the financial markets, is still in terrible shape. The Federal Reserve Bank of New York’s weekly economic index suggests that the economy, although off its low point a few months ago, is still more depressed than it was at any point during the recession that followed the 2008 financial crisis. And this time around, job losses are concentrated among lower-paid workers — that is, precisely those without the resources to ride out bad times.

What about stocks? The truth is that prices have never been closely tied to the economy. As an old economists’ joke has it, the market has predicted nine of the last five recessions. Stocks do get hit by financial crises, like the disruptions that followed the 2008 fall of Lehman Bros. and the brief freeze in credit markets in March. Otherwise, stock prices are pretty disconnected from things like jobs or even GDP. And these days, the disconnect is greater than usual. The recent rise in the market has been driven by a small number of tech giants. And the market values of these companies have little to do with their current profits, let alone the economy in general. Instead, they’re all about investor perceptions of the fairly distant future.

Take the example of Apple. It has a price-earnings ratio — the ratio of its market valuation to its profits — of about 33. One way to look at that number is that only 3% of the value investors place on Apple reflects the money they expect it to make next year. As long as they expect Apple to be profitable years from now, they barely care what will happen to the economy over the next quarters. And Apple’s valuation is actually less extreme than the valuations of other tech giants, like Amazon or Netflix. So tech stocks are riding high because investors believe that they’ll do well in the long run. The depressed economy hardly matters.

Unfortunately, ordinary Americans get little of their income from capital gains, and can’t live on rosy projections about their future prospects. Telling your landlord not to worry about your inability to pay, because you’ll surely have a great job five years from now, will get you nowhere — or will get you put on the street.

So here’s the current state: Unemployment is still high, largely because Trump and his allies first refused to take the coronavirus seriously, then pushed for reopening that met none of the conditions for resuming. So everything suggests that even if the pandemic subsides — which is by no means guaranteed — we’re about to see a huge surge in national misery.

Oh, and stocks are up. Why, exactly, should we care?