Macro-Economic Factors Make for Bad Market Timing

Would knowing next year’s GDP in advance help you invest?

By Dr. Paul Price

Data released by Zacks Investments shows advanced knowledge of some pretty important economic information… might actually have led you astray.

Lost & Confused - image

Since 1933, there have been nine full years which showed negative GDP. Six of those years experienced positive stock market action including three of the past four, and six of the most recent eight.

Negative GDP & Market Returns


The one miss, 2008, was a big one. That was the year the Standard & Poors 500 dropped a whopping 37%. The huge stock market loss experienced at the start of The Great Recession was sandwiched by impressive gains during GDP declines in 1980, 1982 and 2009.

Will 2014 become the next recession year? The recently revised (-2.9%) first quarter certainly points out that possibility. Does that mean you should be hiding in cash? The chart above says it’s dangerous to base allocation decisions on macro-economic factors.

Since GDP is not really correlated with equity performance your best bet is still gauging buy-sell decisions on a bottoms-up basis.

Bottoms Up - image

Cheers to that.

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