![]() Figure 2: Increasing and fluctuating trend of the S&P 500 over 57 years. Figure 1: Increasing trend of the US GDP over 57 years.įigure 2 below shows that the S&P 500 index has been increasing exponentially up to the year 2000 when marked fluctuations occurred for 10 years before stabilizing. ![]() The trend of the US GDP suggests that economy has been performing well for the last 57 years with a slight decline during the global economic crisis of 2008. ![]() The positive skew shows the increasing trend of the US GDP and the S&P 500 index over the years.įigure demonstrates that the US GDP has been increasing exponentially since 1960. The US GDP and the S&P 500 have a positive skew of 0.616 and 0.937 and negative kurtosis of -0.959 and -0.340 respectively. The S&P 500 exhibits a slight dispersion (M = 79.359. Over the past 57 years, the US GDP is highly dispersed (M = $0.75 trillion, SD = $5.66 trillion) with the range of $18.026 trillion. During the same period, S&P 500 index increased from 55.763 to 2064.201. The US GDP increased from 0.5433 trillion dollars in 1960 to 18.569 trillion dollars in 2016. The data shows that both the US GDP and the S&P 500 have increased considerably over time. In determining the relationship, the study made S&P 500 index the dependent variable and the GDP of the United States the dependent variable. To allow reasonable comparison, the study calculated average annual S&P 500 indices and selected data from 1960 to 2016 (57 years), which matched the period of the United States’ GDP selected. The data contained monthly values of S&P 500 index from 1871 to 2017. The data of S&P 500 were retrieved from an online database (“Standard and Poor’s (S&P) 500 Index data,” 2017). To obtain the appropriate data, the United States was selected as well as its GDP values since 1960 to 2016. ![]() The data have yearly values of GDP for 263 countries across the world from 1960 to 2016. The GDP data of the United States were retrieved from the database of the World Bank Group (“Data: GDP (current US$),” 2017). The study employed secondary data obtained from reputable online databases that have valid economic data. As stock markets pool finances, they make them available for the production of goods and services in various sectors and industries. The relationship shows that the stock market reflects the long-term or the short-term economic growth of a country. According to Masoud (2013), the stock market and economic growth have a causal link because they have an intricate positive relationship. Furthermore, consumer spending declines and unemployment rates increases, causing adverse effects on the GDP. In contrast, during a bear market, stock prices tend to go low forcing companies to adopt cost-cutting measures such as reducing production and management of a lean workforce. In a bullish market, consumers tend to increase their purchasing power and accumulate wealth. When the stock market is bullish, investors flood the market, hire extra workers, invest in additional projects, and expand their business activities, resulting in increased GDP (Masoud, 2013). However, their influence varies from one country to another depending on the prevailing economic indicators.Īn opposing view holds that stock market influence GDP by mediating consumer confidence and financial conditions. In their study to determine the effect of economic indicators on stock markets, Plachy and Rasovec (2015) found out that GDP, as well as the unemployment rate, interest rate, inflation, import rate, and export rate are economic indicators that influence the development of stock markets. Some studies demonstrate that the GDP influences stock markets while other studies demonstrate that the stock market affects the GDP. Fundamentally, there is a contention regarding the relationship and the influence of these economic parameters on each other. The GDP and the stock market are major economic parameters that assess economic growth and development of a country. In this view, this research paper hypothesizes that there is a strong correlation between the GDP and the S&P 500 because stock market is a statistically significant predictor of economic activities. Comparison of the GDP of the United States and the S&P 500 demonstrates the influence of the stock market on the national economic performance. Since companies are drivers of economic activities, it implies that the stock market determines their activities, which in turn affect GDP of a country. S&P 500 is an effective economic parameter of measuring the United States stock market because it considers and pools market capitalization of the leading 500 companies that trade in the New York Stock Exchange.
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