Eli5; Why is the US economy so dictated by the ups & downs of Wall Street?

Question

Eli5; Why is the US economy so dictated by the ups & downs of Wall Street?

In: 15

Answer 1

You have it backwards. “Wall Street,” i.e. the performance of index funds such as the NASDAQ Composite and the Dow Jones Industrial Average, is a *reflection* of the state of the economy, not the cause.

This is so because those two funds, along with others, track the performance of major US companies. When their performance slips, that is the economy slipping, and that slip is reflected in the price of the index funds.