Back to the question, “What IS moving the market”? Recently, I compared the current market action with the action from the Federal Reserve and then with the big four-Industrial Production, Real Income, Nonfarm Employment and Real Retail Sales in relation to the market.
Today I will use the Gross Domestic Product-GDP for my comparison and will use a chart featuring the REAL S&P 500 data-adjusted for inflation. I want to thank Doug Short of dshort.com for the data and chart design. First, “what is the GDP and why is it important?” Per Investopedia.com, the GDP is one of the primary indicators used to gauge the health of a country’s economy. It represents the total dollar value of all goods and services produced over a specific time period.
Second, “what will the GDP comparison tell us?” When we chart the GDP and compare it to the Real S&P we can see if they are both moving in the same or opposite direction-helping to confirm or deny the source of the price movement. Per the chart, look at the time period from 1995 to 2000. Note the higher levels of GDP in relation to the multi-year Bull Run? Now, take a look at the shaded gray (recession) areas. See the red, or negative GDP, and the bear market activity?
When we view the REAL action of the S&P 500 in relation to the US GDP during our current four year bull run-you can see the GDP has not increased to the same levels similar to the 1995 to 2000 time frame. This does not bode well for those who claim the current four year run was attributed to an increasing Gross Domestic Product-GDP.
Currently the GDP is barely positive (green) with a 0.1 reading. Will the GDP slip into the red zone or recover? So what IS moving the market while the Dow Industrials are making an all-time high? We can clearly see it is NOT the US Gross Domestic Product.
Next week I will wrap up this series taking a look at some very important population/employment numbers compiled by leading economist Mike Shedlock. In addition, I will give my thoughts on what is REALLY moving the market and why. See you then!
Source: http://www.investopedia.com/ask/answers/199.asp#axzz2NSfc2Jzc
DAVID O. ENGLAND is an associate professor of finance at John A. Logan College and founder of the Eye on the Market-Training Academy. He can be reached at thetraderseye@gmail.com. The information above is for educational purposes only and is not intended to be financial advice. Your decision to buy, sell, short, or hold any stock or investment product is a direct result of your own decision, free will, and research.
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