How True Is 'What's Good for Wall St. Is Bad for Main St.'?

Let's start by defining "Wall Street" and "Main Street." Wall Street, in its broadest sense, refers to the financial markets and the financial institutions, including corporate executives, financial professionals, stockbrokers and corporations. Main Street, on the other hand, refers to many things, including the overall economy, the individual investor and employees.

The reason why what is good for Wall Street might not be good for Main Street is that each segment has differing and often competing interests. There are three major conflicts that arise between the two segments. The first is conflict over the economy, the second is the conflict between individual investors and financial institutions and the last is the conflict between corporations and their employees.

Often in the financial markets, you will see a broad-based selloff in both stocks and bonds when an economic report showing job growth and GDP growth is released. This often surprises Main Street, which may think such a report should be good news to the markets. However, if you looks more closely, it's easy to understand why benefits to the economy and its participants can have a negative effect in the financial markets. Two major factors in the stock and bond markets are inflation and interest rates. With economic and job growth comes inflation, which will often lead to higher interest rates that slow down the economy. Higher inflation and interest rates tend to diminish the earnings of companies as the cost of doing business increases and causes a selloff in their stocks.

The prospect of future interest rate increases leads to a bond selloff because as interest rates rise, bond prices fall. This can also happen with job growth in the economy: When companies do more hiring it can lead to inflation because the amount of money in the economy increases as these new employees get paid. An increase in jobs can also lead to increased wage rates, thus increasing a company's costs. So, while Main Street reaps the benefits of economic growth, Wall Street may see it as a negative.

Sometimes the people you think should be on your side are not completely aligned with your best interests. This is often the situation when it comes to individual investors and the financial institutions they use. Individual investors are looking to meet their financial goals and objectives, while institutions and advisors are looking to generate revenue. Financial institutions and advisors make a lot of their money based on commissions, and this will often increase with the amount of investment. The more you invest, the more money the institutions make.

Salaries for corporate executives have grown steadily over the years, with some CEOs taking in hundreds of millions of dollars in compensation each year. While Wall Streeters see this as a cost of doing business, many Main Streeters see this as a troublesome trend. Most corporate CEOs are compensated based on performance measures such as share price, revenue or cost cutting—therefore, it is not surprising that a corporate executive team will cut department spending and lay off a large number of employees to meet cost-cutting goals and improve the bottom line. Once this is done, executives will often receive huge compensation for meeting the performance measures; meanwhile, employees are devastated by large layoffs. Again, it comes down to conflicting interests: A corporation's main goal is to increase shareholder value, and to do this it needs to keep the share price high. Often, keeping the share price high and increasing shareholder value is done at the expense of the Main Street worker.