Stock market and the Economy

Decade…………………….DJIA Stocks………………GDP Nominal
1900………………………….4.1%……………………….5.3%
1910………………………….0.8%……………………….10.0%
1920………………………….8.8%……………………….3.0%
1930…………………………[-4.9%]…………………….[-1.2%]
1940…………………………2.9%………………………..11.2%
1950………………………..13.0%………………………..6.6%
1960………………………..1.7%…………………………6.9%
1970………………………..0.5%…………………………10.0%
1980………………………..12.6%………………………..7.9%
1990………………………..15.4%………………………..5.4%
2000………………………..1.8%………………………….5.1%

Secular Cycles;
1901-1920 Bear…………0.1%……………………………8.0%
1921-1928 Bull………….19.5%…………………………..1.4%
1929-1932 Bear……….[-33.1%]……………………..[-11.9%]
1933-1936 Bull…………31.6%…………………………..9.3%
1937-1941 Bear………[-9.2%]………………………….8.6%
1942-1965 Bull…………9.5%…………………………….7.5%
1966-1981 Bear……….[-0.6%]………………………….9.6%
1982-1999 Bull………..15.4%…………………………….6.2%

Secular Bear Average….4.2%…………………………….6.9%
Secular Bull Average…..14.6%……………………………6.3%

Thus from the data we can surmise that stock market performance is not closely correlated to the performance of the overall economy; at least not closely enough that you can reliably utilise the economy as an indicator.

Additionally, if you are going to be a “long term” bear, you need to have your timing down pretty accurately as history for a number of reasons, none of which have currently changed, favours over time, a bullish posture.

Below is a chart of the hot sectors going cold, and the cold sectors heating up. Certainly, the cold sector that I have a position in REIT’s, provided an attractive investment entry point, provided you have a method that will absorb short-term volatility.