by Chris Hamilton
Analysts and talking heads have an awful lot of opinions. Are we in a bubble or aren’t we. Rather than offer another opinion, I’ll offer the relationship of US economic activity (GDP) against the Wilshire 5000 (representing US equities) and the Federal Reserves gauge of American wealth, Z1 Household Net Worth series. Then you decide.
Gross domestic product (GDP) is a monetary measure of the market value of all final goods and services produced annually in the US. The chart below shows the annual real GDP growth decelerating since 1950.
The Wilshire 5000 Total Market Index, or more simply the Wilshire 5000, is a market-capitalization-weighted index of the market value of all stocks actively traded in the United States. The chart below shows the Wilshire 5000 vs. the yield on the 10yr US Treasury bond, since 1980.
If you are curious what this looks like over different periods, the chart below suggests the current periods HHNW growth at double the pace of GDP is an aberration.
Finally, from 1950–>2000, the average GDP to HHNW ratio was somewhat consistent around 28%…if the HHNW and GDP ratio are to come back to their 50 year norm before long periods of near Zero Interest Rate Policy and actual ZIRP…there are two basic options:
- Either, GDP rapidly rises $7 trillion (a 38% increase)…Or, the other option is a 28% decline in HHNW, or a contraction of $25 trillion.