Why are today’s stock market highs making people nervous?

Shoppers in London. Ordinary people feel poorer and left behind by the stock market boom. Getty Images

In elections around the world different politicians in different countries make different promises. But wherever one is, or whoever we vote for, from the US to India to the UK (all countries that had elections in 2024) one issue beats every other. The universal issue is simply whether you and I believe we have enough money in our pockets or in savings to provide for ourselves and our families. That was neatly summed up by Bill Clinton’s Democrats in the 1990s with the campaign slogan “It’s the Economy, Stupid”. It always is.

Higher wages, lower prices, the standard of living we can enjoy are the keys to how we vote and the issues on which political parties win or lose power. The promise that beats every other may not be so crude as to tell voters “Vote for me and you’ll get rich,” but every election one way or another usually turns on variants of that simple slogan. And that’s why there is a huge degree of nervousness in political and financial circles worldwide right now that a stock market boom may end with a worldwide economic bust and political instability.

Pew Research in the US noted that the key issue for American voters in the 2024 presidential election was not newspaper stories about whether America was ready for a woman president nor whether Americans thought Donald Trump would bring peace to Gaza. It was that “eight-in-ten registered voters (81 per cent) say the economy will be very important to their vote in the 2024 presidential election.” The Democrats lost, and Mr Trump won – as the saying went, on the economy, stupid.

A floor of the American Stock Exchange in New York this week when US stocks rose. Bloomberg

In Britain, there was a lot of talk about immigration, but it was voters’ belief in Conservative party mismanagement of the economy and high inflation that lost them election. The hope was that Labour might do better. In India Narendra Modi’s BJP performed less well than many expected in what was the biggest democratic vote in world history. The BBC reported at the time that Prime Minister Modi saw the BJP returned to power but with a “significant drop in seats”. Commentators explained the drop was “linked to joblessness, rising prices, growing inequality.” Yes, it was the economy, again, in India too.

Those three elections in three very different democracies find echoes around the world. Whether you are Elon Musk counting his billions or a factory worker in Bhopal, an oil worker in the North Sea or a beef rancher in Texas, the political ideology that matters most to people is their self-interest.

And that’s why, despite the glowing, even at times astonishing, performance of stock markets reaching new heights in the past year, there remains a degree of nervousness right now from investors and politicians about the potential for what some fear could be a stock market crash. That has led to nervousness in governments about the likely effect on their economies and their citizens.

Numerous reasons for this nervousness have been cited. One is the boom in Artificial Intelligence investments and fears that markets are over-excited, over-priced and therefore overdue for a fall

Search online for whether you should be worried about a crash and there’s no end of scare stories. “Are we really heading for another 1929?” was one British newspaper headline. “Nobody knows” is the correct answer. Reuters had a more reasonable headline - “G20 risk watchdog warns of potential for financial market crash.” Then the head of JP Morgan Chase, Jamie Dimon, told the BBC that he was “far more worried than others” about what is euphemistically called a stock market “correction”.

Numerous reasons for this nervousness have been cited. One is the boom in Artificial Intelligence investments and fears that markets are over-excited, over-priced and therefore overdue for a fall. Others point out the good news that Mr Trump (for now at least) seems to have avoided a full-scale trade war with China over tariffs.

But whatever the stock markets do, what concerns politicians in many countries is that ordinary people - voters - feel poorer and left behind by the stock market boom. In Britain inflation - most recently at 3.4 per cent - is lower than a year ago but the price of the weekly shop continues to rise. Pay has gone up 20 per cent since 2021 but prices have gone up 28 per cent. Fuel bills are high and getting higher. Pollsters conclude that more than half of Britain’s homeowners may turn their thermostats down and have colder homes this winter.

The boom or bubble in investments in AI and the gloom about a potential bust on Wall Street makes for sobering headlines, but for most of us around the world it’s the prices on our local high street that really make a difference.

Economic volatility leading to political volatility inevitably therefore has seen the rise of populist parties from Argentina to Europe and beyond. That’s because populist leaders essentially promise to bring us relief in difficult times. But whatever our views about the promises of politicians or the pumped-up stock markets may be, we should all take note that the price of gold was $2700 an ounce a year ago. It is now more than $4000 an ounce. Why? Well, it’s the economy, isn’t it?