Below is a popular comparison of gross domestic product (GDP) and the stock market, using the Wilshire 5000 Index.
Below is the percentage change on a year-over-year basis for both the GDP and the Wilshire 5000 Index.
Below is an expansion of the GDP relative to the Wilshire 5000.
Perception versus Reality
In the first example, it appears that GDP run on a smooth incline from left to right with marginal variability while the stock market gyrates wildly. In the second example, the smoothness of the GDP is no longer present. In addition, the GDP appears to be in a relative declining trend as time passes. In the third example, there is more of a sense of the relative change between the two indicators.
Worth noting is the fact that in periods when the year-over-year data on the stock market went negative, as last shown in Q1 2019, the following recovery exceeded 20%, at minimum. Currently, as reported by the Federal Reserve Bank of St. Louis, we’ve seen an increase of approximately +12% from the Q1 2019 y-o-y low.
When comparing two disparate data sets, it makes sense to convert the data to the closest comparable numbers so that the comparison is as relative as possible.