How can I use this information?
Don't invest in the stock market just because the Gross Domestic Product is growing.
GDP growth is not a reliable signal. A growing economy and positive forecasts
published by the government or private economists only provide a false sense of
security. Virtually all of the bear markets since 1950 occurred when the economy was
growing or suffering through a minuscule GDP decline.

It was commonly understood that the U.S. economy was under traumatic stress during
2001 and 2002. The constantly rising GDP figures during those years appear to be
inconsistent with that perception.
GDP represents the value of goods and
services produced within a country's borders. It is a  Gross Revenue figure. It
is not a profitability indicator.
It doesn't reflect the costs involved in producing those
goods and services. In other words, GDP can go up while profit goes down.
The
health of the stock market is related to profitability, not gross sales.
While it is
possible for sales to rise and profitability to fall. It is very difficult to maintain profitability
with persistently declining sales.
Therefore, in the unlikely event of significant
and persistent GDP declines, get ready for a multitude of corporate heart
attacks. If GDP grows, just yawn.

Expect GDP to avoid declines of the magnitude experienced during the great
depression. The government will follow Japan's example and spend enough to keep
GDP above water. However, as GDP exhibits growth, don't place your faith in it. The
financial journalists, commentators and advisors may all agree that a growing GDP will
save the day. However, what everyone assumes to be true often is not.

SignalTrend's unemotional computer timing system is currently bearish, but it may
change its buy / sell signal in the near future. If that happens, SignalTrend will notify
you by email. Remember, SignalTrend's stock market timing system was backtested
100 years with excellent results!

J. C. Phillips,
Editor

P. S.
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Observations:
● A persistently declining GDP could decimate the stock market.
● Stock market downturns do occur while the economy is
growing.
● A growing economy is not a reliable "BUY" signal for stocks.
● GDP is an accepted measure of economic growth.
1900      1910       1920       1930        1940       1950       1960       1970       1980       1990        2000      2010
The DJIA, S&P 500 and the NASDAQ indexes are plotted by monthly close. Dividends
are not included. From 1929 through 1946, GDP is represented by the Annual Gross
Domestic Product.  From 1947 through September of 2008,  GDP is represented by
the Quarterly Gross Domestic Product. All GDP information is from the Bureau of
Economic Analysis, an agency of the U.S. Department of Commerce. All four graphs
are shown in logarithmic scale. Logarithmic scale plots equivalent distances on the
chart for equivalent percentage changes.

The GDP decline during the 30's was accompanied by a devastating 89% decline in
the stock market.

The sixteen roller coaster years of 1966 - 1982 occurred simultaneous with rising GDP.
This is true even with inflation adjusted (real) GDP. The Dow made no real headway
during those sixteen years. GDP grew but stock prices just broke even.

Since 1959, there were only 4 quarters of declining GDP. The average decline was
0
.37%. None of the declining quarters were consecutive. None of them occurred during
2001 - 2002. None of them were severe enough to be evident on the graph.
Will a Growing Economy Revive Stocks?
Strategy Research: Summary, Analysis and Long Term Test Results
Our Market Timing...  Your Triple Gain !                             Backtested 100 Years !
SignalTrend
1966 - 1982
(16 Years)
GDP - Gross Domestic Product
NASDAQ
S&P 500
Dow Jones Industrial Average
89% Decline
_
78% Decline
/
49% Decline
/
(measure of economic growth)
33% Loss
/
22%
Decline
\
GDP, DJIA, S&P 500 and NASDAQ
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Analysis:
It is generally believed that a growing Gross Domestic Product (GDP) is good for
stocks. In the extremely long term, this belief is supported by the following graph.
However, there have been very long periods where poor stock performance and
economic growth occurred simultaneously (up to 16 years). There have been
numerous sharp declines in the stock indexes during periods of economic growth.
Losses in the 20% - 80% range are prevalent the graph below.

The economy can grow and you can still get slaughtered in the stock market. This
proposition is hard for many to swallow. However, the evidence presented herein spans
three quarters of a century.  The objective investor will follow the evidence... wherever
it leads.
-47%
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12/12/08
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