By Randall W. Forsyth
The business of America is mainly business, according to the aphorism attributed to President Calvin Coolidge. That was over a century ago, however. Now the business of America has become the stock market.
"There was time it was the economy that drove the stock market," writes veteran economist David Rosenberg, the eponymous head of Rosenberg Research. "Now it's the stock market that drives the economy, and not because the stock market has reclaimed its historical role in financing capital expenditures, but rather its evolution into a secondary market for speculation and household wealth creation."
Equating the equity market with a casino is a puritanical criticism that goes back nearly as far as Silent Cal's observation and has been repeated by any number of famous investors, from Warren Buffett on down. But it is increasingly difficult to draw the distinction between stocks and wagering, given the rise of one-day-to-expiration, or ODTE, options plus the melding of sports gambling on brokerage sites, while gambling sites provide prediction contracts on established futures exchanges.
The capital-formation function has been ceded to the private markets, with initial public offerings increasingly an avenue for early private investors and insiders to "monetize" their holdings rather than just raise new money. That is reflected in the burgeoning number of "unicorns, " or private firms valued at over $1 billion -- now 857, up from 114 a decade ago, according to Torsten Sløk, chief economist of Apollo Capital, the private-equity and credit powerhouse.
Instead, Rosenberg argued in provocative client notes recently, the stock market has been turned into a tool to drive the economy, with government policies arrayed to institutionalize the bull market. That primacy for the administration is clear, from the introduction of Trump Accounts, seeded with $1,000 for newborns to be invested in a U.S.-based index fund, to Attorney General Pam Bondi's bizarre non sequitur in recent House testimony on the Epstein scandal, citing the 50,000 mark on the Dow Jones industrials.
Whether the Federal Reserve admits it or not, the stock market has also been a focus. That started under former Chair Alan Greenspan, who met the October 1987 crash by promising "to serve as a source of liquidity to support the economic and financial system." Decades earlier as a private economist, he saw a link between the stock market and corporate investment plans, according to Sebastian Mallaby's monumental biography, The Man Who Knew: The Life and Times of Alan Greenspan.
Colloquially, the Fed's action to halt the Black Monday crash became known as the Greenspan put, an insurance policy against steep losses. The Fed put -- which has remained in effect under successive Fed chairs -- has underpinned the bullish investor sentiment that is key to maintaining public participation in the market, Rosenberg said in an interview.
As Merrill Lynch's chief North American economist during the 2000s, he learned from Merrill's legendary market strategist, Bob Farrell, that sentiment is the main driver of market swings. Changes in price/earnings ratios explain about 80% of market moves, while earnings fundamentals account for only 20%, Rosenberg said.
Greenspan again came to the stock and global bond markets' rescue during the collapse of Long-Term Capital Management in 1998, with the Fed cutting its federal-funds policy rate in the midst of a strong economy, setting the stage for the peak of the dot-com bubble.
But the Fed's focus on the stock market changed materially under Ben Bernanke, who instituted "quantitative easing" -- the injection of liquidity from purchases of Treasury and agency mortgage-backed securities -- as a key part of the monetary tool kit. Rosenberg said. QE1 took place in November 2008, a proper response to the financial crisis.
Then Bernanke took it a step further, with QE2 in November 2002, when he explicitly tied gains in the stock market to boosting consumer confidence and spending. And in 2020, the Fed, led by Jerome Powell, pulled out all of the stops to fight the pandemic crisis, expanding its purchases to corporate bonds from Treasuries and agency MBS. In the process, its balance sheet ballooned to almost $9 trillion, a more-than-tenfold increase from before the financial crisis.
By underwriting record budget deficits of nearly 6% of GDP, a level previously associated with steep recessions or wars, the expansion of the Fed's balance sheet and the pegging of the fed-funds rate near zero sent inflation back to a four-decade high above 9% in 2022. That is just what the consumer price index measures. Asset prices -- which aren't counted in inflation gauges -- also soared with what is considered by normal folks in the cost of living, notably home prices.
Joseph Carson, the former chief economist of AllianceBernstein, says the removal of house prices from the CPI in the early 1980s -- in favor of the made-up number of owner-equivalent rents -- produced a more benign price performance. That understatement of inflation then allowed the Fed to pursue an easier monetary policy, pumping up stocks and house prices.
Kevin Warsh, Trump's nominee to succeed Powell, has been critical of QE after his stint as a Fed governor in 2006-2011. But Carson points out that Warsh also sees inflated asset prices as a symptom of too-easy monetary policy, which he says may pose a challenge to Wall Street.
Even more than in the past, the Trump administration's policy is to keep the bull market advancing, Rosenberg contends. Equity wealth has superseded incomes from employment as the driver of spending, he says. The result has been the K-shaped economy, with those with assets benefiting from their inflation, leaving the rest behind.
The question is whether the central bank and the federal government have permanently repealed market cycles. So far, it has paid for investors to play along. But could the Fed put reach expiry under Warsh?
Write to Randall W. Forsyth at randall.forsyth@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
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February 20, 2026 14:24 ET (19:24 GMT)
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