Don’t Let the S&P 500’s Mixed Messages Derail Your Investment Strategy101 views 2013-06-29 00:21 Tags: direction economic evidence blank believe
The connection between economic growth and the stock market, best represented by the S&P 500, is a complicated affair. Many investors mistakenly believe that both need to be moving in the exact same direction at the exact same time. But nothing could be further from the truth. For evidence, take a look at the economic growth rate over the last few years. While it’s quite clear that economic growth has been very anemic, the S&P 500 has in fact had a huge positive return.
There are actually many reasons that could push the S&P 500 up. Economic growth is obviously one of them, in addition to the profitability of the individual companies, many of which obtain revenue from international sources and don’t depend entirely on economic growth in the U.S., as well as the increase in monetary stimulus by the Federal Reserve.
I have been of the opinion that the Federal Reserve has primarily fueled much of the move up over the past few months.
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The news that the Federal Reserve might begin to reduce its asset purchase program has led to a significant decrease in the S&P 500 as investors whose primary catalyst was monetary liquidity ran for the exits.
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