Conclusions:
● Stock market downturns typically occur while the economy is growing.
● A growing economy is not a reliable "BUY" signal for stocks.
● Stock market downturns typically occur while the economy is growing.
● A growing economy is not a reliable "BUY" signal for stocks.
Analysis:
It is generally believed that a growing economy is good for stocks. In the extremely long term, this belief
is supported by the following graph. However, there have been very long periods where poor stock
performance and economic growth occurred simultaneously (up to 16 years). There have been
numerous sharp declines in the stock indexes during periods of economic growth. Losses in the 20% -
80% range are prevalent the graph.
The economy can thrive and you can still get slaughtered in the stock market. This proposition is hard
for many to swallow. However, the evidence presented herein spans three quarters of a century. The
objective investor will follow the evidence... wherever it leads.
It is generally believed that a growing economy is good for stocks. In the extremely long term, this belief
is supported by the following graph. However, there have been very long periods where poor stock
performance and economic growth occurred simultaneously (up to 16 years). There have been
numerous sharp declines in the stock indexes during periods of economic growth. Losses in the 20% -
80% range are prevalent the graph.
The economy can thrive and you can still get slaughtered in the stock market. This proposition is hard
for many to swallow. However, the evidence presented herein spans three quarters of a century. The
objective investor will follow the evidence... wherever it leads.
| 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 |
The DJIA, S&P 500 and the NASDAQ indexes are plotted by monthly close. Dividends are not
included. From 1929 through 1946, GDP is represented by the Annual Real Gross Domestic Product
(adjusted for inflation). From 1947 through September of 2005, GDP is represented by the Quarterly
Real Gross Domestic Product (adjusted for inflation). All GDP information is from the Bureau of
Economic Analysis, an agency of the U.S. Department of Commerce. All four graphs are shown in
logarithmic scale. Logarithmic scale plots equivalent distances on the chart for equivalent percentage
changes.
included. From 1929 through 1946, GDP is represented by the Annual Real Gross Domestic Product
(adjusted for inflation). From 1947 through September of 2005, GDP is represented by the Quarterly
Real Gross Domestic Product (adjusted for inflation). All GDP information is from the Bureau of
Economic Analysis, an agency of the U.S. Department of Commerce. All four graphs are shown in
logarithmic scale. Logarithmic scale plots equivalent distances on the chart for equivalent percentage
changes.
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| Does the Economy Influence the Stock Market? Strategy Research: Summary, Analysis and Long Term Test Results |
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Our Market Timing... Your Triple Gain ! Backtested 100 Years !
SignalTrend
| 1966 - 1982 (16 Years) |
GDP - Inflation Adjusted Gross Domestic Product
NASDAQ
S&P 500
Dow Jones Industrial Average
| 89% Decline |
_
| 78% Decline |
/
| 49% Decline |
/
(measure of economic growth)
| 33% Loss |
/
| 22% Decline |
\
| Relative Performance of GDP, DJIA, S&P 500 and NASDAQ |