Many investors believe that Gross Domestic Product drives stock prices. After all, the level of total corporate success is reflected in GDP, and stocks are shares in corporations.
Sounds logical. But the data tell a different story.
Remember, if someone says, “All leaves are green,” all you need to do is find one red one to refute the claim.
Let’s offer two historical examples of big mismatches between GDP and stock market action.
First – GDP was positive every quarter from early 1976 through the end of 1979 – a span of 3¾ years. One quarter even posted the strongest quarterly rise in GDP over a half-century span. Yet, the Dow fell 22% in roughly the same period.
Second — In Q4 1987, GDP posted its biggest up quarter in a 15-year period. Yet, the stock market suffered its biggest crash since 1929 during that same quarter. In fact, GDP was in the middle of an extended period of expansion, turning in a positive performance every quarter for thirty straight quarters—twenty before the crash and ten thereafter.
GDP clearly doesn’t drive stock prices. That’s a myth.
We don’t rely on economic stats to forecast the market – and neither should you.
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Or, see more debunked market claims when you read chapters 1 and 2 of The Socionomic Theory of Finance, free.
