The capitalist media treats the stock market as an indication of the economy’s overall health. If stock prices are high, things are good. If the trend line plummets, it signals a crisis. Wall Street’s wild fluctuations appear like a mysterious force, able to make billions of dollars appear or vanish.

What’s really happening? Solving the riddle requires understanding the material reality underlying the stock market: the real economy where commodities—goods and services—are produced and exchanged.

Under capitalism, workers are forced to sell our time to the capitalists in exchange for a wage. They put us to work producing commodities, which are then sold on the market.

These commodities have use-value because they satisfy a human need or want. They also have exchange-value because they can be traded for other commodities. This latter value is given a monetary expression with a price tag.

Where does a commodity’s value come from? Machines can’t create it. They simply transfer their own value to new commodities through wear and tear. Similarly, raw materials are consumed in production and transfer their value to new products. Only human labor can create new value. That’s why the price of a commodity tends to fluctuate around the socially necessary labor time needed to replace it.

Capitalists make profits by exploiting labor in commodity production. They are compelled to produce as much as possible, as quickly as possible, and as cheaply as possible. Those who don’t keep up go out of business.

Credit helps lubricate the capitalist system. Capitalists borrow to expand production and repay with interest out of future profits. But they only realize profits when commodities are sold on the market. When more is produced than can be profitably sold, it leads to a crisis of overproduction.

What is the stock market?

With the rise of capitalism, joint-stock companies emerged, allowing investors to pool their resources into a single business venture. Companies sell stock to raise capital and expand production, and investors buy stock to put otherwise idle money to profit-seeking use.

Stocks are an example of what Marx called “fictitious capital.” Unlike land, factories, tools, etc., stocks and other fictitious capital can’t be used to produce commodities. Instead, holders of fictitious capital are entitled to a portion of the profits from future production.

These profits may periodically be paid to shareholders in the form of dividends. But investors mainly make money by selling stocks for more than they originally paid for them. In essence, they are speculating on a company’s future profitability.

Shares are publicly traded on stock exchanges. The business press often refers to indices that track a portion of the stock market. For example, the S&P 500 tracks the prices of 500 leading stocks on US exchanges, while the Dow Jones Industrial Average tracks just 30 prominent stocks on the New York Stock Exchange and NASDAQ.

When these indices rise, it means money is pouring in because investors expect a good return. Beneath this lies a confidence that future commodities will be sold at a profit. When that confidence disappears, prices on the market decline.

What is speculation?

The initial sale of a stock provides capital to a company, but they don’t get any money from subsequent trades. Stock prices fluctuate according to supply and demand. For example, if a company reports high earnings, more investors will want to buy its stock than sell it, causing an increase in price. Bad news has the opposite effect.

Speculators aim to make money by betting on these short-term price fluctuations. In the 1950s, the average stock was held for eight years. By 2020, it was only five and a half months. Today, about 50% of stock trades in the US are executed by “high frequency” traders—a euphemism for speculators.

Why is speculation increasing? The crisis of capitalism leaves fewer opportunities for profitable investment in the real economy. Bourgeois parasites can make a higher rate of profit by betting on the stock exchange than by investing in productive capacity, raw materials, and exploiting labor on the factory floor.

Why all the stock buybacks?

One way a corporation can keep its stock price high—and its investors happy—is to buy back its own shares, thereby reducing the supply on the market. Since 1997, the amount spent by S&P 500 companies on stock buybacks has been greater than what they’ve paid in dividends.

A parallel phenomenon is the rise of “zombie” companies, which are so heavily indebted that they can only pay the interest on their debt. They may even borrow more just to keep their creditors at bay. In 2023, 11.5% of American stocks pertained to zombie companies, according to MarketWatch.

That same year, Bed Bath & Beyond filed for bankruptcy and closed all its physical stores. They’d spent $7 billion on stock buybacks over the course of a decade—while increasing the proportion of shares owned by company executives. The firm’s lack of actual productive activity led to bankruptcy and cost 5,000 workers their jobs. This is just one example of how stock market shenanigans can affect the real economy.

What is a bubble?

Engels called money the “commodity of commodities” because it facilitates the exchange of other goods. That’s why the amount of money in circulation changes along with the sum total of commodities a society produces. But the money used for buying and selling fictitious capital is put into circulation without any corresponding real value underlying it.

Shares don’t represent existing values, but a claim on profits yet to be made. Often, speculators see a stock rising and sense an opportunity for big returns. They pour in money, causing the price to rise even higher. This feedback loop creates a bubble—until suddenly the realization sets in that real-world profits will never materialize, and the bubble bursts.

Bubbles are a graphic example of the relationship between the stock market and the real economy. Capitalism couldn’t function without fictitious capital, which allows idle cash to be shifted into productive investments. But this is also the root cause of bubbles. Stock prices can become inflated for a time, but eventually they come crashing back to reality.

What’s going on with the stock market now?

Trump’s trade war is creating massive uncertainty—impacting both the stock market and the real economy. When share prices crater, investors usually sell stocks and use the money to buy less risky US government debt. But after “Liberation Day,” investors were selling off both stocks and US Treasury bonds. This indicates that many capitalists wanted to pull out of the country entirely. Trump announced his 90-day pause to try and stop this capital flight.

Things don’t look much better for the real economy. Capitalists won’t invest in production unless they see a market for their goods. Today, 22% of America’s existing productive capacity sits idle, unable to generate a profit when the market already has a glut of commodities that can’t be sold.

This underlying crisis expresses itself—in a distorted way—on the stock market. Decades of money pumped into the market has created an “everything bubble” waiting to burst. This is how eye-watering figures of $6 trillion can be “wiped out” in a matter of days.

How does the stock market affect the working class?

Only about 21% of US families own shares directly, but 58% have 401(k)s or other retirement plans tied to fluctuations of the market. When the stock market nosedives, it wipes out money that workers expected to retire on. Bosses have been cutting back on pension plans for years. Skyrocketing government debt and a demographic crisis threaten Social Security. Every day, more workers realize that capitalists want us working until we die.

While most Americans have small amounts in the market, it has always been dominated by a minority of wealthy parasites. Around 93% of all stock-market wealth is held by the richest 10% of the population, and 54% is held by the richest 1%.

When Bush and Obama bailed out the big banks during the 2008 crisis, many suffering workers asked “Where’s my bail out?” In the next slump, this question will be asked once again—this time by workers who experienced the intervening years of declining living standards, the pandemic, high inflation, etc.

Communists will be there to explain how to bail ourselves out. Only a workers’ government can free us from the whims of parasitic speculators by expropriating the Fortune 500. Under democratic workers’ control, production will be planned in a rational manner and the tremendous productive forces already in existence will be used to benefit society as a whole.