The general market convention is that stock market moves in tandem with economy, which is pounded by CNBC day in and day out making sure that its viewers are aligned to the same thought process. To prove it wrong Zapata highlights that if the 34-year period between 1965 and 1999 is split into two parts 1965 to 1982 and 1982 to 1999 of 17 years and corresponding economic growth measured by GDP and market returns are analyzed the scenario would be as follows
1965 β 1982 - Dow Jones Industrial Average - 0 % net gain
1982 β 1999 - Dow Jones Industrial Average - 1200% net gain
Now how about the economic growth measured by GDP stack up
1965 β 1982 - GDP - 600 % growth
1982 β 1999 - GDP - 450% growth
So combing the above when GDP had grown by 600% for 17 years between 1965 and 1982 we had a net gain on DJIA of 0%. But while GDP had grown by only 450% in the 17 years between 1992 and 1999 we had a DJIA gain of staggering 1200%.
Why did that happen?
If the interest rates are observed during the same period between 1965 and 1982 they went up from 4% to 16% and for the 17 years between 1982 and 1999 they went down from 16% to 4-5%. So in summary market moves in relation to interest rates rather than GDP numbers and following is the summary of the above
1965 to 1982 - GDP 600% growth - DJIA 0% return - Interest rates went up from 4% β 16%
1982 to 1999 - GDP 450% growth - DJIA 1200% return - Interest rates went down from 16% β 4%.
To view the entire video on YouTube video below:
1965 β 1982 - Dow Jones Industrial Average - 0 % net gain
1982 β 1999 - Dow Jones Industrial Average - 1200% net gain
Now how about the economic growth measured by GDP stack up
1965 β 1982 - GDP - 600 % growth
1982 β 1999 - GDP - 450% growth
So combing the above when GDP had grown by 600% for 17 years between 1965 and 1982 we had a net gain on DJIA of 0%. But while GDP had grown by only 450% in the 17 years between 1992 and 1999 we had a DJIA gain of staggering 1200%.
Why did that happen?
If the interest rates are observed during the same period between 1965 and 1982 they went up from 4% to 16% and for the 17 years between 1982 and 1999 they went down from 16% to 4-5%. So in summary market moves in relation to interest rates rather than GDP numbers and following is the summary of the above
1965 to 1982 - GDP 600% growth - DJIA 0% return - Interest rates went up from 4% β 16%
1982 to 1999 - GDP 450% growth - DJIA 1200% return - Interest rates went down from 16% β 4%.
To view the entire video on YouTube video below:
