Earnings, GDP and Equity Valuation

Posted by

This might be the most important chart for a beginning investor to grasp I’ve ever seen.

So many times I get asked the question (especially these past two years) about how it’s possible for stocks to be rallying as the economy worsens.  My answer has always been that the economy and the stock market are not brothers, they are more like cousins, and eventually they’ll catch up to each other – one way or another.

Which is a pretty good answer, even if vague.  My friend Jake at EconomicPic just did me a huge favor, he’s actually shown this data going back to 1951 and the proof of how, even though the relationship between stock values, earnings (corporate profits) and nominal GDP can get stretched in the short-term, in the long-term these three amigos remain pretty tight.

Behold!

Source:

Corporate Profits, Economic Growth, and Equity Valuation (EconomicPic Data)

What's been said:

Discussions found on the web
  1. video transitions sam kolder commented on Sep 15

    … [Trackback]

    […] Read More on on that Topic: thereformedbroker.com/2011/08/28/earnings-gdp-and-equity-valuation/ […]

  2. w88 commented on Sep 21

    … [Trackback]

    […] Find More on to that Topic: thereformedbroker.com/2011/08/28/earnings-gdp-and-equity-valuation/ […]

  3. EV EatVerts commented on Sep 22

    … [Trackback]

    […] Read More on to that Topic: thereformedbroker.com/2011/08/28/earnings-gdp-and-equity-valuation/ […]

  4. thenaturalpenguin commented on Sep 22

    … [Trackback]

    […] Find More to that Topic: thereformedbroker.com/2011/08/28/earnings-gdp-and-equity-valuation/ […]

  5. classic facebook commented on Sep 25

    … [Trackback]

    […] There you can find 89244 additional Information on that Topic: thereformedbroker.com/2011/08/28/earnings-gdp-and-equity-valuation/ […]

  6. window washing commented on Oct 02

    … [Trackback]

    […] There you can find 58240 additional Info to that Topic: thereformedbroker.com/2011/08/28/earnings-gdp-and-equity-valuation/ […]

  7. fun88 commented on Oct 13

    … [Trackback]

    […] Find More on that Topic: thereformedbroker.com/2011/08/28/earnings-gdp-and-equity-valuation/ […]

  8. travel document number commented on Oct 29

    … [Trackback]

    […] Here you will find 33192 additional Information on that Topic: thereformedbroker.com/2011/08/28/earnings-gdp-and-equity-valuation/ […]

  9. Digital transformation commented on Nov 26

    … [Trackback]

    […] Find More Information here on that Topic: thereformedbroker.com/2011/08/28/earnings-gdp-and-equity-valuation/ […]

  10. tangerine bank canada online commented on Nov 26

    … [Trackback]

    […] Find More Info here to that Topic: thereformedbroker.com/2011/08/28/earnings-gdp-and-equity-valuation/ […]

  11. rescuetowingcompany.com commented on Dec 12

    … [Trackback]

    […] Read More on to that Topic: thereformedbroker.com/2011/08/28/earnings-gdp-and-equity-valuation/ […]

  12. buy credit card dumps online commented on Dec 19

    … [Trackback]

    […] Find More to that Topic: thereformedbroker.com/2011/08/28/earnings-gdp-and-equity-valuation/ […]

  13. 늑대닷컴 commented on Dec 28

    … [Trackback]

    […] Information to that Topic: thereformedbroker.com/2011/08/28/earnings-gdp-and-equity-valuation/ […]

  14. DevOps Solutions commented on Jan 12

    … [Trackback]

    […] Read More Info here to that Topic: thereformedbroker.com/2011/08/28/earnings-gdp-and-equity-valuation/ […]

HowIInvestMyMoney