Why stocks can split from the broader economy

Major stock indexes can diverge from the broader economy because they track expected profits for publicly traded companies, not the current condition of wages, employment or output.

The S&P 500 is weighted by market value, giving a small number of large companies outsized influence. Small businesses, government services and informal labor do not show up in stock-market indexes, even though roughly half of U.S. workers are employed by small businesses.

Stock prices also look ahead to future earnings, while gross domestic product measures goods and services already produced. Rising share prices can concentrate wealth among higher-income households, while cost cuts, price increases or production shifts can lift profits without improving wages or jobs.

Read the full story at qz.com.