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GDP Growth and Stock Market Returns

Posted in Economic Indicators

The U.S. Bureau of Economic Analysis (BEA) each quarter estimates economic growth via changes in Gross Domestic Product (GDP) and its Personal Consumption Expenditures (PCE), Private Domestic Investment (PDI) and government spending components. BEA releases advance, preliminary and final data about one, two and three months after quarter ends, respectively. Do these estimates of economic growth usefully predict stock market returns? To investigate, we relate economic growth metrics to S&P 500 Index returns. Using quarterly and annual seasonally adjusted nominal GDP data from BEA National Income and Product Accounts Table 1.1.5 as available during January 1929 through September 2019 (nearly 90 years) and contemporaneous levels of the S&P 500 Index, we find that:

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