A:

Let's start by defining the terms "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.

The Economy and the Financial Markets
Oftentimes in the financial markets one 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 one 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 the economy down. 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.

Financial Institutions and the Investor
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.

Corporations and Employees
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 must be done at the expense of the Main Street worker.

RELATED FAQS
  1. Where does the name "Wall Street" come from?

    As with many of the famous streets and roads in the world, Wall Street's origins have historical significance. Its name is ... Read Answer >>
  2. Is there a difference between financial ratio analysis and accounting ratio analysis?

    Discover the economic factors that most influence corporate bond yields. Corporate bond yields reflect the market's assessment ... Read Answer >>
  3. Where did the term "tenbagger" originate?

    On February 15, 1989, Peter Lynch's investing book, "One Up On Wall Street", made its debut. At the core of the book was ... Read Answer >>
  4. What are the main factors that drive share prices in the financial services sector?

    Learn what factors affect share prices in the financial services industry and how shrewd investors analyze those factors ... Read Answer >>
  5. What is the relationship between inflation and interest rates?

    In general, as interest rates are lowered, more people are able to borrow more money, causing the economy to grow and inflation ... Read Answer >>
  6. What are some advantages of a market economy over other types of economies?

    Learn what a market economy is, the main assumption behind a market economy and some important advantages a market economy ... Read Answer >>
Related Articles
  1. Investing

    Is Main Street Capital Overvalued?

    Financial companies are often valued based on multiples of book value. On this metric alone, Main Street Capital (NYSE: MAIN) is relatively expensive, trading for a significant premium to the ...
  2. Insights

    Presidential Candidates And Wall Street In 2016

    Wall Street's influence will play a large role in the 2016 presidential race. As election season begins, candidates are showing their true colors.
  3. Financial Advisor

    Making It Big On Wall Street

    Read about some of the most glamorous Wall Street jobs and what it takes to land one.
  4. Personal Finance

    How To Land a Wall Street Job Out of College

    Getting a job on Wall Street right after college can be difficult, but there many paths that eventually lead to Wall Street.
  5. Personal Finance

    Which Financial Careers Pay The Most?

    There are many job that can be considered "working in finance" but some definitely pay more than others.
  6. Investing

    Small Cap Research Can Have A Big Impact

    Don't rely on Wall Street analysts for information on these stocks.
  7. Insights

    Is Belfort's "Wolf" The Real Wall Street?

    Those sex-obsessed, drug-taking thugs who ripped off investors in Martin Scorcese's all-time biggest-grossing film, "The Wolf of Wall Street," have nothing in common with the refined investment ...
  8. Personal Finance

    A Look At Entry-Level Careers In Finance

    Learn more about the career options that are available to you after you've obtained your finance degree.
  9. Investing

    State Street Stock Trades Ex-Dividend Thursday

    State Street will send its dividend payment on April 18 to shareholders of record as of April 3.
  10. Insights

    How Interest Rates Affect The U.S. Markets

    Interest rates can have both positive and negative effects on U.S. stocks, bonds and inflation.
RELATED TERMS
  1. Main Street

    A colloquial term used to refer to individual investors, employees ...
  2. Wall Street

    1. A street in lower Manhattan that is the original home of the ...
  3. Conflict Of Interest

    A situation where a professional, or a corporation, has a vested ...
  4. Tech Street

    A term used in the financial markets and the press to refer to ...
  5. Bay Street

    A street in Toronto, Canada that is home to several major banks, ...
  6. High Street Bank

    A term originating in the U.K. to refer to large retail banks ...
Hot Definitions
  1. Marginal Utility

    The additional satisfaction a consumer gains from consuming one more unit of a good or service. Marginal utility is an important ...
  2. Contango

    A situation where the futures price of a commodity is above the expected future spot price. Contango refers to a situation ...
  3. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  4. Acid-Test Ratio

    A stringent indicator that indicates whether a firm has sufficient short-term assets to cover its immediate liabilities. ...
  5. Floating Exchange Rate

    A country's exchange rate regime where its currency is set by the foreign-exchange market through supply and demand for that ...
  6. Taxes

    An involuntary fee levied on corporations or individuals that is enforced by a level of government in order to finance government ...
Trading Center