So it seems the stock market returns roughly double the GDP growth. That seems kind of odd to me. I know the stock market isn’t the economy, but why would stocks grow twice as fast as GDP over the long term? Is it because so many people invest their savings there, pushing up prices? Is this an expected correlation between GDP and stock prices?
GDP is defined by national borders
This is probably it. A lot of companies on US exchanges do a significant amount of business in other countries, so it’s possible international markets are pushing returns up here. But it seems global GDP returns are similar. I think I need to go find a book about how GDP and markets are related.
The mean GDP growth rate is ~3%, while the total US market real growth rate is something like 6-7% (S&P 500 since 1960) over that same period.
So it seems the stock market returns roughly double the GDP growth. That seems kind of odd to me. I know the stock market isn’t the economy, but why would stocks grow twice as fast as GDP over the long term? Is it because so many people invest their savings there, pushing up prices? Is this an expected correlation between GDP and stock prices?
This is probably it. A lot of companies on US exchanges do a significant amount of business in other countries, so it’s possible international markets are pushing returns up here. But it seems global GDP returns are similar. I think I need to go find a book about how GDP and markets are related.