Re: GDP growth versus Stock market growth: I don't get it.

From: John Conover <john@email.johncon.com>
Subject: Re: GDP growth versus Stock market growth: I don't get it.
Date: 17 Aug 2001 02:07:11 GMT

For the DJIA, 1900-01-02 to 2001-04-06, the gain in value per year
was 1.046584162621.

For the S&P500, 1928-01-03 to 2001-04-06, the gain in value per year
was 1.05547419935.

For the NASDAQ, 1984-10-11 to 2001-04-06, the gain in value per year
was 1.12583350673.

For the NYSE COMPOSITE, 1966-01-03 to 2000-12-29, the gain in value
per year was 1.07690672044.

For the USGDP, 1940-01-01 to 1995-12-31, the gain in value per year
was 1.08114163318.

None of which are adjusted for inflation.

For the DEFLATION, 1940-01-01 to 1995-12-31, the gain in value per
year was 1.04489629014.

        John

BTW, LSMF on the data. Equity indice data was from the exchanges-daily
close. USGDP and DEFLATION-annual data from the FED.  Indice data
available from http://finance.yahoo.com/. FED USGDP and DEFLATION data
available from 1996 US Federal budget,
gopher://sunny.stat-usa.gov:70/11/BudgetFY96 and 1997 US Federal
budget, http://www.doc.gov/BudgetFY97/index.html.

Statistical estimates, confidence:

    DJIA: 99.2819%
    S&P500: 99.1223%
    NASDAQ: 98.2448%
    NYSE COMPOSITE: 98.7234%
    USGDP: 85.4791%
    DEFLATION: 0.854791

which says don't put a lot of confidence in 60 years of annual data.

C sources to programs used available at:

    http://www.johncon.com/ndustrix/utilities.html

and:

    http://www.johncon.com/ntropix/

for the tsshannoneffective program, (which was used with the -e
argument,) for the confidence levels.

Dez Akin writes:
> I asked a friend of mine that was taking some econ classes this. He
> still hasn't given me a satisfactory answer.
>
> So whats the real economic growth rate on average for the US economy?
> Like 3% or something over the past 100 years?
>
> And the growth rate on stock capitalization has been like 7% in real
> return over inflation right?
>
> Does this make anyone nervous? So whats going on here? Are the P/E
> ratios getting more and more inflated on average, or is corporate
> america growing much faster than the rest of the economy?
>
> I mean how much of the economy is represented by the stock market?
>
> Won't you eventually hit a wall if your p/e multiples are held
> constant where the return on stock investment can't grow faster than
> the economy if stocks swallow up the entire economy?

--

John Conover, john@email.johncon.com, http://www.johncon.com/