The Stock Market: Looking in from the Outside

We are nearly halfway through 2013 and the S&P 500 Total Return Index is on pace to deliver a return of over 47% for the year. In the last 188 years of stock market activity, the market delivered an annual return of over 40% just ten times. The last time it did so was 1958 and it is interesting that 1928 was one of the ten years.

Yesterday’s Wall Street Journal Ahead of the Tape column by Spencer Jakab had a chart titled  ”Unhinged,” in which Jakab showed average stock market returns relative to average GDP growth during the last eleven recoveries from a recession. The market return is almost FIVE times GDP growth in the current expansion, but averaged only 1.47 times GDP growth in the previous ten recoveries.

Is 2013 going to be one of the once-every-nineteen-years when the market rises over 40%? Can a market rise that much on Federal Reserve balance sheet growth alone? Perhaps, like in 1928, this party is still in the ten o’clock hour. What will happen when the clock strikes midnight?

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2 Responses to The Stock Market: Looking in from the Outside

  1. Jonathan says:

    What led to the great crash of ’29 was not necessarily just high priced, but that people took on high amounts of leverage to amplify their returns (which ended up leading to amplified losses). Investor leverage was as much of a causal factor behind the crash than simply extremely high prices. Until we see a lot of leverage in the system again, its hard to imagine a ’29 style crash…

  2. Jonathan says:

    In my humble opinion of course… who knows what the future will bring…

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