How Closely Tied Are the Stock Market and the Economy?

We often speak of the stock market and economy as if they’re closely tied together. The evidence suggests they’re not.

For one, the stock market follows corporate profits which is only a small part of the overall economy. Secondly, the stock market tries to look ahead in time. That’s why the best time to invest is when things look terrible. Consider how glum everyone was four years ago.

Here’s a look at quarterly changes in GDP (horizontal) along with quarterly changes in the S&P 500 (vertical). To me, it looks like one big mess.


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Posted by on April 29th, 2013 at 12:33 pm

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