Does Recent Weak GDP Growth Spell the End of the Stock Market Bull Run?

The US and eurozone recently reported second quarter GDP growth that fell short of expectations with both posting 1.2% growth rates. The results and other economic reports have led to economists reducing their expectations for growth over the second half of the year.  Given the weak recent growth by historical standards and meager future expectations, does this mean that equities are going to see weak performance over the near term?

Dimensional Fund Advisors took a look at this question and found that, historically, GDP growth has little bearing on equity market returns. In Exhibit 1 below, the chart shows GDP growth vs. equity market return for a country in a given year.  There are quite a few country/year combinations that have decent GDP growth, but have substantially negative equity performance and those with negative GDP with strongly positive equity returns.  In developed markets, when GDP growth was positive there were 323 country/year combinations that had over 10% performance and 192 country/year combinations that had -10% performance.  The same trends carried over to emerging markets.

GDP growth vs return

They also found, even with perfect foresight of GDP growth across markets, there is little evidence that the information would have helped. They compared the performance of equity markets in countries that experienced high growth with those that experienced low growth in developed and emerging markets as defined as above or below the median economic growth rate.  They found that investing in high growth countries did not deliver reliable excess returns.  In fact, the developed markets actually had superior equity market performance from the low growth countries.

While many investors believe that strong GDP growth is needed to see strong equity market returns, the historical data shows that this is not the case. Even if we continue to see slow growth in the US and abroad, how various equity markets perform is anyone’s guess.  Thus, we recommend you remain steadfast with your target asset allocations to US and international equity markets and to ensure you are positioned to benefit from equities long term expected return.


Index Performance                                    July     YTD    Trl 1 Yr        

US Stock (Russell 3000)                                  3.97%    7.74%    4.44%
Foreign Stock (FTSE AW ex US)                    5.04%   4.29%   -4.66%
Total US Bond Mkt. (BarCap Aggregate)     0.63%    5.98%    5.94%
Short US Gov. Bonds (BarCap Gov 1-5 Yr) -0.04%    2.31%    2.16%
Municipal Bonds (BarCap 1-10yr Muni)       0.22%    2.92%   4.57%
Cash (ML 3Month T-Bill)                                 0.03%    0.17%   0.22%




Raffa Wealth Management is an independent investment advisor providing nonprofit organizations, high net-worth investors, and qualified retirement plans with a full range of investment consulting services.  We were established to fill the need for transparency, clarity, and vision in the professional management of investment assets.   Visit us at


There is no guarantee that any investment strategy, including those described here, will be successful. Any investment or investment strategy can lose money. Past performance does not guarantee or predict future results. You should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from Raffa Wealth Management, LLC. This information was gathered from reliable sources but we cannot guarantee accuracy. Indexes do not reflect the fees associated with actual investments and such fees would reduce the performance illustrated.
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