Sometimes, stocks will go up even when literally everything looks bad. Stocks will even rally when the earnings prospects of their underlying companies are falling.
The biggest sin, however, for investors is to believe that U.S. stocks have a one-to-one relationship with U.S. GDP.
This is true in the short run as well as in the long run.
All this brings us to this fantastic chart from Bloomberg LP Chief Economist Michael McDonough. It tracks the progressions of revisions for economists’ GDP forecasts for each year since 2011.
As you can see, those estimates have largely been negative for the past four years. See the blue, yellow, red, and black lines.
Meanwhile, the S&P 500 (the green line) has only been going up.
But the bottom line: stocks don’t move like the economy.