This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Finding the Missing Link Between Stocks and GDP

Famous advice is timeless. Such suggestions as "Go west, young man," and "plastics" may not retain their original import, but would you counsel a modern-day successor to The Graduate with "nanotubes?" Peter Lynch's fame as the longtime manager of the Fidelity Magellan Fund was such that even though he retired from this role more than 13 years ago, he arguably remains the world's most famous mutual fund manager. Part of his fame is no doubt derived from his pithy aphorisms, such as "know what you own," and his trenchant observation that if you spend more than 15 minutes a year thinking about the economy, you've wasted your time.

I must, as an economist, reject this last observation, but in homage to Lynch's career, I'll offer the following candidate for advice immortality: "Retire early."

In Search of the Lost Chord

I concluded last week's declamation of the stock market-GDP link with a chart of the residuals, or unexplained portion, of a model of inflation-adjusted total return on the S&P 500 based on inflation-adjusted GDP. These residuals were not the desired random, or white-noise, process distributed trendlessly around zero, but rather a descriptive process in their own right. If we can model the series charted below successfully, we can learn which macroeconomic factors to follow for future stock market direction.


Something Is Missing
Source: Howard Simons

Step One is always trust your eyesight. The most powerful computer around is still the one between your ears and it's hard-wired to recognize visual patterns. Think about our tree-swinging ancestors who needed to guess where the next branch was. This is why the first step in investment analysis always should be a glance at the chart. As an added bonus, we can conclude from the above that successful chartists and most orangutans are really kindred spirits; that is today's contribution to the great and never-ending technical vs. fundamental debate.

1 of 4

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Submit an article to us!
SYM TRADE IT LAST %CHG
AAPL $128.32 -0.30%
FB $78.72 -0.11%
GOOG $540.78 0.00%
TSLA $237.99 3.20%
YHOO $42.04 0.00%

Markets

DOW 18,070.40 +46.34 0.26%
S&P 500 2,114.49 +6.20 0.29%
NASDAQ 5,016.9290 +11.5380 0.23%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs