It is often believed that the higher GDP growth rate should result in higher profits from the company, which should cause higher equity yields. But how true this relationship is?
Ritesh Jain, the founder of Pinetree Macro, a macro-foundations and an investment company, believes that the popular belief of a direct correlation between GDP growth and equity prices may not be true.
“Yes, that’s true … There is no correlation between GDP growth and equity prices …”, he shared on X quoting a research document in 2016 in the 2016 Société d’EMERICAN Financial Services Northern Trust.
The research document shows a surprising lack of correlation between GDP growth forecasts and real investment returns. Despite the time and significant efforts devoted to monitoring and forecasting GDP changes for investment decision -making, research suggests that traditional GDP methods may not be useful for investors in the Creation of practical investment choice.
Jain cited Chinese and German economies to strengthen his point. “Chinese GDP is up 15 times in the past 25 years. The stock market has increased only by 0.5 times. Chinese growth has never accrelaterate to shareholders. Although all the news you read … It seems that Germany has followed an economic suicide.
“Thus, never correlates growing GDP growth (at) the rise in stock markets,” he concludes the post.
Although the stock market is often a feeling indicator that can have an impact on GDP negatively or positively, GDP does not measure the stock market.
