Economy crash =/= stock market crash?

tebbins

tranquility1 said:

sevenhills said:

More than two-thirds of investors are anticipating a stock market pullback before the end of the year, research suggests, amid concerns over growth prospects and the Covid-19 Delta variant.

According to a poll of over 550 global investors by Deutsche Bank, an equity correction sometime before the end of the year is “an overwhelming consensus now”, with 58% forecasting a drop of 5% to 10%.

One in 10 expect a steeper tumble, while just less than a third predict market will avoid stumbling in the next few months.

https://www.theguardian.com/business/2021/sep/13/stock-market-correction-deutsche-bank-covid-19

Just catching on now, are they?

And as for their projections...  I'll give you some more accurate numbers:

There is a 100% chance of a market correction before the end of the year. It will be anything up to, and perhaps beyond a 50% drop. And it could happen this week (google 'Evergrande').

By that definition you are guaranteed to be right unless the market doesn't have a single negative day for the rest of the year. I agree it doesn't make sense that we go into a recession and the market rebounds, but the market is always forward looking. There was no Covid recession/depression in March 2020, yet that was when the main UK indices bottomed out.

I did some maths to answer this question more precisely for the UK and US using capital only stock indices and nominal/current prices GDP. The S&P 500 has been particularly affected by stock buybacks since 1982, so I also provide separate tables up to and from yearend 1981 (https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2993933). Further, the early 80s was a period of near-record low price earnings ratios, so I also take rerating out of the "S&P 500 lagged/led GDP by" number to get a "net" figure. 

TL;DR there is almost no correllation between stock markets and economies. Over the very long-term, the aggregate earnings and market capitalisations of stock markets tend to grow at the nominal growth rate of the economy they are in. This tends to be diluted before being passed onto shareholders as companies issue more shares to continue to raise capital. However, even when this does happen, the market/GDP ratio can also change. One example of this is how privatisation/deregulation/globalisation etc. grew the FTSE 100 from£100bn at the start of 1984, 28.5% of the previous year's GDP, to £1,721bn at the start of this year, 81.5% of 2020's GDP figure. Annualised, the FTSE 100 grew at 5.17% and GDP grew at 4.97%.

Someone who didn't understand this previously said I was making it up:

"The combined market value of the initial 100 companies in 1984 was just over £100bn and the index was based at 1,000. At the end of January 2021, it stood at 6,407, representing an annual gain of 5.1%. But it was valued at over £1,500bn, reflecting an annual growth rate of 7.6%. This implies that 33% of the growth in value of the index has come from net share issuance" (moneyweek.com/investments/stockmarkets/uk-stockmarkets/602745/uk-stocks-the-ftse-100-is-finding-its-feet-again%3famp)

Data

UK GDP growth rate	7.52%
FTSE growth rate	6.56%
FTSE lagged GDP by	-0.90%
Correllation	0.252

...

US GDP growth rate	6.24%
S&P 500 growth rate	6.27%
S&P 500 led GDP by	0.02%
*of which rerating	0.84%
*net	-0.81%
Correllation	0.177
GDP '30-'81	7.25%
S&P '30-'81	3.99%
S&P lagged GDP by	-3.05%
*of which rerating	-1.53%
*net	-1.54%
Correllation	0.222
GDP '81-'20	4.94%
S&P '81-'20	9.32%
S&P led GDP by	4.18%
*of which rerating	4.02%
*net	0.15%
Correllation	0.115

...
Sources: UK stock index from FTSE All Share and Barclays Equity Gilts Study 1948-2020, UK nominal GDP from ONS, all US data from multpl.com 1930-2020

Malthusian

sevenhills said:

More than two-thirds of investors are anticipating a stock market pullback before the end of the year, research suggests, amid concerns over growth prospects and the Covid-19 Delta variant.

What would be far more interesting to know is the results of Deutsche Bank's polls from previous years and how they corresponded to what actually happened in the stockmarket.

sevenhills

Malthusian said:

What would be far more interesting to know is the results of Deutsche Bank's polls from previous years and how they corresponded to what actually happened in the stockmarket.

If they predict a crash, they will be right, eventually.

Thrugelmir

sevenhills said:

Malthusian said:

What would be far more interesting to know is the results of Deutsche Bank's polls from previous years and how they corresponded to what actually happened in the stockmarket.

If they predict a crash, they will be right, eventually.

A correction isn't a crash.  If companies generally , for example, fail to meet the markets expectations in terms of financial performance. Then hardly surprising that share prices will fall back. Many investors seem to lack an understanding of what they are actually investing in.  

tranquility1

Thrugelmir said:

sevenhills said:

Malthusian said:

What would be far more interesting to know is the results of Deutsche Bank's polls from previous years and how they corresponded to what actually happened in the stockmarket.

If they predict a crash, they will be right, eventually.

A correction isn't a crash.  If companies generally , for example, fail to meet the markets expectations in terms of financial performance. Then hardly surprising that share prices will fall back. Many investors seem to lack an understanding of what they are actually investing in.  

Many investors seem to lack an understanding of lots of things.  For example:

The only thing keeping the stock market from crashing is QE.  Assets are in a massive bubble because of the printing of money.  That will come to an end at some point.

Investors today have only ever know declining interest rates and cheap money.  This also will come to an end.

Investors today have only ever known (with a couple of blips) a very kind and lucrative equities market.  The last 40 years are not what the equities market has always been like and it too will come to an end at some point.

Prism

tranquility1 said:

Thrugelmir said:

sevenhills said:

Malthusian said:

What would be far more interesting to know is the results of Deutsche Bank's polls from previous years and how they corresponded to what actually happened in the stockmarket.

If they predict a crash, they will be right, eventually.

A correction isn't a crash.  If companies generally , for example, fail to meet the markets expectations in terms of financial performance. Then hardly surprising that share prices will fall back. Many investors seem to lack an understanding of what they are actually investing in.  

Many investors seem to lack an understanding of lots of things.  For example:

The only thing keeping the stock market from crashing is QE.  Assets are in a massive bubble because of the printing of money.  That will come to an end at some point.

Investors today have only ever know declining interest rates and cheap money.  This also will come to an end.

Investors today have only ever known (with a couple of blips) a very kind and lucrative equities market.  The last 40 years are not what the equities market has always been like and it too will come to an end at some point.

The last 40 years have contained the crash of the worlds largest economy, the dot.com crash and the great financial crisis. I'm sure more will be to come but its not at all true that investors today have only known kind equity markets. 

Although interest rates are very low, we have no idea if or when they will rise by much. We may never see rates above 2% again.

tebbins

tranquility1 said:

Thrugelmir said:

sevenhills said:

Malthusian said:

What would be far more interesting to know is the results of Deutsche Bank's polls from previous years and how they corresponded to what actually happened in the stockmarket.

If they predict a crash, they will be right, eventually.

A correction isn't a crash.  If companies generally , for example, fail to meet the markets expectations in terms of financial performance. Then hardly surprising that share prices will fall back. Many investors seem to lack an understanding of what they are actually investing in.  

Many investors seem to lack an understanding of lots of things (oh really, I can think of one in particular).  For example:

The only thing keeping the stock market from crashing is QE.  Assets are in a massive bubble because of the printing of money.  That will come to an end at some point.

Investors today have only ever know declining interest rates and cheap money.  This also will come to an end.

Investors today have only ever known (with a couple of blips) a very kind and lucrative equities market.  The last 40 years are not what the equities market has always been like and it too will come to an end at some point.

This is entertaining but can you please contain your excitement to a single thread and stop spamming threads started by people asking genuine questions?
Try looking at old articles and comments sections on the forum, This Is Money, the FT, archived newspapers, 20th century chronicles etc. Was there ever a time when people like you weren't worried about investing "with everything going on these days"?

Michael121

tebbins said:

tranquility1 said:

Thrugelmir said:

sevenhills said:

Malthusian said:

What would be far more interesting to know is the results of Deutsche Bank's polls from previous years and how they corresponded to what actually happened in the stockmarket.

If they predict a crash, they will be right, eventually.

A correction isn't a crash.  If companies generally , for example, fail to meet the markets expectations in terms of financial performance. Then hardly surprising that share prices will fall back. Many investors seem to lack an understanding of what they are actually investing in.  

Many investors seem to lack an understanding of lots of things (oh really, I can think of one in particular).  For example:

The only thing keeping the stock market from crashing is QE.  Assets are in a massive bubble because of the printing of money.  That will come to an end at some point.

Investors today have only ever know declining interest rates and cheap money.  This also will come to an end.

Investors today have only ever known (with a couple of blips) a very kind and lucrative equities market.  The last 40 years are not what the equities market has always been like and it too will come to an end at some point.

This is entertaining but can you please contain your excitement to a single thread and stop spamming threads started by people asking genuine questions?
Try looking at old articles and comments sections on the forum, This Is Money, the FT, archived newspapers, 20th century chronicles etc. Was there ever a time when people like you weren't worried about investing "with everything going on these days"?

I know tranquillity likes his conspiracy theories and how he's going to get rich in ripple and xlm but are you saying if we didn't get all that free money and Q/E the markets wouldn't have kept crashing last year?

tebbins

Michael121 said:

tebbins said:

tranquility1 said:

Thrugelmir said:

sevenhills said:

Malthusian said:

What would be far more interesting to know is the results of Deutsche Bank's polls from previous years and how they corresponded to what actually happened in the stockmarket.

If they predict a crash, they will be right, eventually.

A correction isn't a crash.  If companies generally , for example, fail to meet the markets expectations in terms of financial performance. Then hardly surprising that share prices will fall back. Many investors seem to lack an understanding of what they are actually investing in.  

Many investors seem to lack an understanding of lots of things (oh really, I can think of one in particular).  For example:

The only thing keeping the stock market from crashing is QE.  Assets are in a massive bubble because of the printing of money.  That will come to an end at some point.

Investors today have only ever know declining interest rates and cheap money.  This also will come to an end.

Investors today have only ever known (with a couple of blips) a very kind and lucrative equities market.  The last 40 years are not what the equities market has always been like and it too will come to an end at some point.

This is entertaining but can you please contain your excitement to a single thread and stop spamming threads started by people asking genuine questions?
Try looking at old articles and comments sections on the forum, This Is Money, the FT, archived newspapers, 20th century chronicles etc. Was there ever a time when people like you weren't worried about investing "with everything going on these days"?

I know tranquillity likes his conspiracy theories and how he's going to get rich in ripple and xlm but are you saying if we didn't get all that free money and Q/E the markets wouldn't have kept crashing last year?

As you can see, I haven't said that.

tranquility1

Narrator:  "That's exactly what he said".