What is the connection between the overall economy and market returns?
April 14th, 2008 by Stephen RomanIn the short run, it’s hard to say.
Though it is hard to observe in the everyday noise of the stock market, in the long run stock prices are driven by two factors: earnings growth (or decline) and/or price-to-earnings expansion (or contraction).
As is apparent from Exhibits 1 & 2, either by a decade at a time or a market cycle at a time, it is difficult to find a link between stock performance and the economy (e.g., GDP, corporate earnings growth, or inflation). The connection does exist, but periods of disconnect appear to last for decades at a time.
Posted: April 14th, 2008 under Americas, Equities, General.
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