It can’t be reiterated enough that the stock market and the economy are not that same thing.
For one thing, the S&P 500 represent corporations that are big enough to access the very liquid global capital markets to finance their operations. Nearly half of the sales from these companies are generated overseas.
The S&P 500 largely excludes the mum-and-pop businesses that don’t exactly have million-dollar marketing power.
But this is not to say that there is no relationship between stocks and the economy.
This chart comes to us from RBC Capital’s Jonathan Golub.
“Historically, a 1% change in nominal GDP has resulted in a 2.6% change in S&P 500 revenues,” he wrote.
We wouldn’t bet on that correlation remaining static.
Regardless, it’s interesting to see that while the direction of growth may be similar, the magnitudes are very different.
So, for the thousandth time, the stock market and the economy are not the same thing.
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