GDP vs stock market: Is there a correlation? Here’s what Pinetree Macro’s Ritesh Jain says

It is often believed that higher GDP growth rate should translate to higher company earnings, which should result in higher equity returns. But how true is this relationship?

Ritesh Jain, the founder of Pinetree Macro, a macro fund and investment company, believes that the popular belief of a direct correlation between GDP growth and stock prices may not be true. 

“Yes it is true … there is no correlation between GDP growth and stock prices…,” he shared on X citing a 2016 research paper by American financial services company Northern Trust. 

The research paper shows a surprising lack of correlation between GDP growth forecasts and actual investment returns. Despite the significant time and effort dedicated to monitoring and predicting GDP changes for investment decision-making, the research suggests that traditional methods of analysing GDP may not be useful for investors in making practical investment choices. 

Jain cited Chinese and German economies to strengthen his point. “Chinese GDP is up 15x over the past 25 years. The stock market is up only 0.5x. Chinese growth has never accreted to shareholders.  The value accretion goes to the government (Seven sages Capital). German DAX is at an all-time high although any news you read… it looks like Germany has committed economic suicide. Canada TSX is at an all-time high whereas Canadian GDP growth is expected to worst among OECD countries between 2021-2031,” the X post read. 

“So never correlate a rising GDP growth (to) rising stock markets,” he concludes the post. 
 

While the stock market is often a sentiment indicator that can impact GDP negatively or positively, GDP does not measure the stock market.