Stock Market Returns (Decades)
Although it is hard to observe in the everyday noise of the stock market, in the long run stock prices are driven by two factors: earnings growth (or decline) and/or price-to-earnings expansion (or contraction). ANNUAL StockMarket-Returns from 1930 until 2000:
As is apparent from the Exhibit above, either by a decade at a time or a market cycle at a time, it is exremely difficult to find a short-term link between stock performance and the economy (e.g., GDP, corporate earnings growth, or inflation). The connection does exist, but periods of disconnect appear to last for decades at a time.
From 1930 - 2000 (a timespan of 70 years) the annual return of the S&P-500 Stock market (S&P 500 Total Return-column - Performance incl. dividends) was ca. 10.77% ! During theses times the earnings in the S&P 500 were growing at a pace of ca. 5.2% p.a. while the average inflation numbers were showing ca. 3.3%.
In the following chart one can only see long-lasting Bull Markets or medium- to longterm lasting Sideways-markets. To make it clear >> As Long As:
♦ Inflation Remained Reasonable,
♦ Deflation Was Absent,
♦ GDP And Earnings Growth Remained Positive
>> The Stock-Market Was Either - Bull - Or - Sideways !