Limited Correlation Between Stock Market and Economy

While the stock market and the economy are often associated with each other, there is limited correlation between the two in the short and medium term. Economic performance, measured by indicators like GDP, accounts for only around 7% to 11% of stock market growth or contraction on a yearly basis. The stock market is forward-facing and based on investors' expectations, while economic measures aim to guide economic decision-making. The global pandemic highlighted this disconnect, as economic metrics were poor while stock markets were breaking all-time records. In the long term, however, there is a correlation between economic output and stock market performance.