The Stock Market Is Not the Economy
S&P 500 vs. GDP growth — the disconnect is real
The stock market is forward-looking and driven by earnings expectations, liquidity, and sentiment. GDP is backward-looking and measures current output. The two diverge significantly in the short run — especially around recessions where stocks bottom well before GDP troughs.
What history says
Editorial commentary written by ALAN analysts. Figures cited below are analyst-authored context — they are not derived from the chart above and may reflect different windows or sources.
The S&P 500 is a leading economic indicator, not a coincident one. It bottomed in March 2009 while GDP didn't trough until Q2 2009. It bottomed in March 2020 while GDP was still collapsing.
By the time economic data confirms weakness, stocks have already priced it in and often already bottomed. Selling on bad economic data is consistently selling after the fact.
Stocks can rally during a recession (if expectations were worse than reality) or fall during a boom (if expectations were even better than reality). All that matters is outcomes vs. expectations.
Strike 'the economy looks bad' from your list of valid selling reasons: by the time output data confirms weakness, prices have typically moved first, so let allocation changes flow from your plan and rebalancing bands rather than from GDP headlines.