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From 1990-2000 Everything "Caused" the SPX to Move Higher


Whaddaya mean the market ain't linear?


Consider the following data series:

  • From March 1992 to March 1995 personal consumption went from 6.8% y/y growth to 0.6% y/y. The S&P was up 19.9% during that time.

  • From June 1996 to June 2000, GDP never increased, going from 6.7% to 6.4% (averaging 4.5%). The S&P 500 was up 121% during that period of stagnant GDP growth.

  • From October 1994 to February 2001, the ISM manufacturing index fell 30%. During that period the S&P 500 gained 164%.

  • For its part, from October 1997 (start of data series) to October 2001, the ISM non-manufacturing index (service sector index) decreased 35%. The S&P 500 was flat during that period.

  • From June 1990 to March 1994, average hourly earnings dropped 48%, The S&P 500 gained 26% in that period.

  • From March 1994 to March 2000, average non-farm payroll employment gains decreased from about 356,000 adds per month to 290,000 adds per month with a fairly steady average during that period of 230,000 adds per month. The S&P 500 gained 231% in that period.

  • The peak in non-farm productivity in March 1992 was never exceeded but twice in the following 8 years (in December 1999 and June 2000), with the average hovering around 2% vs. the March 1992 peak of 6.6%. The S&P 500 gained 260% in those 8 years.

  • Industrial production peaked in August 1998 at 1.9% y/y, declining to -1.0% in January 2001. The S&P 500 gained 16% during that period.

  • Capacity utilization peaked in December 1994 at 85%. It declined to 75 in December 2001. In that time the S&P 500 gained 153%.

Conclusion: there is not one - not one - data series that we could analyze from 1990 to 2000 that did NOT result in much higher stock prices subsequent. Not yields curves, not macroeconomic data series. Not public calls for bear markets. Nothing.

What does that imply? That stock prices were not a function of these data series; not on a leading basis nor on a lagging one.

Post hoc, ergo prompter hoc should not be the basis for any investment decision. Be very careful about causal relationship mining.

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