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In his bullish call on the S&P 500 (calling for it to go to 1400), BofA’s David Bianco makes the point that the index is not a good analogue for the US economy, and thus it shouldn’t be expected to nicely track the zigs and zags of GDP.Here’s why a quick rundown of why the two aren’t parallels:
- The US economy is short oil (weakens when oil goes up) while the S&P 500 is net long oil.
- The S&P 500 is 40% foreign.
- Non-financial GDP is largely services, whereas the S&P 500 is dominated more by manufacturers. GDP is also mainly consumer oriented, while the S&P 500 is much more geared towards business spending.
- A strong dollar is good for US GDP, while a weak dollar is good for S&P 500 earnings.
- The US GDP is captive to US taxation, while S&P 500 companies can seek out better tax regimes.
Something to chew on.
For his fuller bullish call on the index, see here.
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