Economics Explained
Why Top Investors Are Betting Against The USA
Sep 19, 2023
Michael Burry, famous for shorting the US housing market in 2008, now bets against the US bond market. Explore the relationship between the economy and the stock market, and the challenge of predicting economic cycles. Understand the inverted yield curve and concerns about overvaluation in the USA.
15:34
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Quick takeaways
- There is limited correlation between the stock market and the economy in the short and medium term, with economic performance accounting for only a small percentage of stock market growth or contraction on a yearly basis.
- Econometrics helps economists analyze past data to understand relationships between economic indicators and stock market performance, providing usable information for economic decision-makers.
Deep dives
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.
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