Reply to Why is the US stock market so lucrative?

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[quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous]The lesson from U.S. markets is simple: Invest intelligently and consistently and prosper over the long term.

Stock market returns vary by time frame but the tendency is clear:
Past 10 years (2016 – 2025): 15.75%
Past 20 years (2006 – 2025): 12.39%
Past 30 years (1996 – 2025): 11.80%
Past 40 years (1986 – 2025): 12.74%.
S&P 500 historical performance: Since its inception in 1928, the index has averaged an 10.02% annual return. However, it wasn’t until 1957 that the index included 500 stocks. Since then, the average annual return has been 10.59%.
📌 Source: NYU Stern School of Business

Anyone can invest, those who don't or who choose speculation instead typically are the ones complaining about their poor financial positions.  The U.S. markets create wealth and are accessible to anyone.  
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These are impressive numbers -- but how can average market returns be such much higher than average GDP growth? Curious for some insight on this issue from somebody with a deep background in economics.[/quote]

Why do you think there needs to be a correlation?  They reflect different things.  Stock prices represent what companies are worth; GDP is the total market value of goods and services for a specific time period.

That said, GDP and the stock market generally move in the same direction over the long term, with rising GDP (economic growth) driving higher corporate earnings, increased consumer confidence, and bullish stock performance. However, they often diverge in the short term because the stock market is forward-looking and acts as a leading indicator, whereas GDP is backward-looking. They are not perfectly correlated.  Stocks also demonstrate short term fluctuations, while GDP measurements can lag considerably.[/quote]

I'm not talking about year-to-year correlations. I'm talking about LONG TERM averages. How is that that the U.S. stock market has an avg return since 1950 of about 8% greater than inflation, while real GDP growth has averaged 2%? This trend -- if it continues -- would result in stock market capitalization being hundreds of times greater than the size of the economy. Does this seem plausible?
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Yes it does.  There is no economic concept or theory that ties these together over the long or short term.[/quote]

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