Jul

24

I did a quick look at real GDP vs. SP500 quarterly changes to see if there is any relationship. Regarding GPD there are numerous revisions and this study uses the final revision. Using the first estimate for GDP would have been better, but I don't have that data. So there is a retrospective bias. Here are the correlations with lags of up to 5 quarters since 2004:

GDP to predict SP500

0   .55

1   .16

2  -.17

3  -.21

4  -.11

5  -.09

Even given all the shortcomings of the study I would not have expected correlations to go negative after 1 quarter lag 

SP500 to predict GDP

0  .55

1  .51

2  .35

3  .37

4  .15

5  -.04
 

 Correlation is stronger in this direction and fits with the adage that the market it looking ahead 3-9 months.

Here is the same using the change of change for real GDP(1st derivative) vs SP500:

Rate of GDP Change to predict SP500

0  .47

1  .39

2  .06

3  .-15

4  -.01

5  -.01

This is somewhat interest with lag1, but not actionable since all the revisions for GDP usually take a full quarter.

SP500 to predict Rate of change of GDP

0  .47

1  -.05

2  -.20

3  -.02

4  -.26

5  -.23

Some relationship a year away, but seem suspect as not stationary.

 


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