Monday, February 05, 2007

U.S. Stock Market, 1800-2007

In a previous CD post "Economic Growth," I had a graph of world GDP per capita from 1 - 2003 A.D., and commented that "sustained economic growth of even 1% per year was not a reality until the 19th century, and sustained economic growth of 2-3% was not a reality until the last 50 years," and only in advanced economies like the U.S.

That post generated a lot of interest, and it was linked to several other blogs. That made me think about historical stock market performance, which should follow the same historical pattern as economic growth, since they are linked so closely together. Without positive economic growth, you won't have positive stock market growth.

Sure enough, sustained positive growth in the U.S. stock market was not a reality until 1950, see the graph above of the S&P 500 Index from 1800-2007. The S&P 500 Index stock series back to 1800 is from
Global Financial Data.

From 1800 to 1950, the average annual nominal stock market return was 1.35%, inflation averaged 2.4%, resulting in a negative, real annual stock market return of -1.05%.

From 1950 to 1975, the average annual return on the S&P 500 was 6.1%, inflation averaged 3.24%, resulting in a real return of 2.9%.

From 1975 to 2007, the average stock market return was 9.1%, inflation averaged 4.3%, generating a real return of 4.8%.

Bottom Line: It's only been in the last 50 years that positive, real stock returns were a reality, and it's been in the last 25 years that real, annual stock returns have approached 5%.


At 4/11/2009 10:29 AM, Blogger robert said...

I assume these returns are excluding dividends. I do know that during the 1930's, dividends were a primary source of returns for stocks. That may have been the case in a pre-industrial economy. Is there any way this data can be updated to include dividends?

At 10/22/2009 3:50 AM, Anonymous Dave said...

Interesting to see how this correlates with world population growth and oil production

And consider cause and effect, does economic growth drive population growth and oil production or is it the other way around?

How long is population growth sustainable?

When will the oil run out? - some say peak oil is imminent

What will happen to economic growth in a world when the age of oil is over?


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