Dear Sanel,

The discrepancy between the economic activity indicators and the stock exchange results, i.e. between the economic and financial situation of a specific economic entity of the securities issuer and the valuation of these securities on the stock exchange (in microeconomic terms) and between the economic situation in the national economy and the change in stock indices (in macroeconomic terms) and between the change in economic efficiency of business entities operating in specific industries, sectors, economic markets and sectoral stock indices (in meso-economic terms) increases in situations of uncertainty, increase in investment, financial, market risk, etc., in shorter periods, in periods of changing trends boom in the context of certain phases of the business cycle, in periods of strong economic and / or financial crises, etc., in a situation where psychology of financial markets increases its importance in relation to a fundamental analysis based solely on hard, adjusted economic data. I studied this issue in the context of sources and effects of the global financial crisis of 2008.

Best Regards, Have a nice day,

Dariusz Prokopowicz

In the long run there is a high correlation between stock market returns and economic performance. In the short run there can be a lead or lag relation, and sometimes seemingly no connection between the two variables.One explanation is that current stock prices have the future growth and riskiness of cash flows impounded into the present prices whereas economic activity measures only reflect current conditions. The stock market crash of 1987 was completely divorced from the economy at that time. Your illustration is the opposite where the impact of the response to COVID-19 is a plunge in the economy. Previous literature supports the above thoughts:

https://www.sciencedirect.com/science/article/abs/pii/S1042443198000365

Article Long-Run Stock Returns: Participating in the Real Economy

Article The Determinants of Stock Returns in a Small Economy

https://d1wqtxts1xzle7.cloudfront.net/50541138/The_relationship_between_stock_returns_c20161125-17625-90d32y.pdf?1480095877=&response-content-disposition=inline%3B+filename%3DThe_Relationship_between_Stock_Returns_C.pdf&Expires=1591730045&Signature=HPIjtugAh8wRgAGNnSjd~QAC4tpvifF6B3YpsL7YTXyt3XXtdihssLOGnJELBjhXAp4dE~xTS2u2Gj-SgLgjO8YNoRYUvJF3bB5XhSAjV3oKpSEzD9Xy-aR9KZbSPhF-FoNM0ZS9lm7LO4ZgbbC47oETsvV390RhSljH~yhUGlHYDQR0rs6eBV1Swj8AxiW-d2NhX~vBkFF2GpZxFAcK-zOzcw8KnETdTg85SH~c1xPkqpvMOLmn55MDaWXxopWsNKBCRYdCE9HrIGuTyPdXazCxbQodWoQYZk3mnJneqvbs3TWbG1uXRwfMEEC3Bd72XSSMu0ejiJeg0dVEzcTTlQ__&Key-Pair-Id=APKAJLOHF5GGSLRBV4ZA

Article An empirical investigation of the relationship between the r...

https://www.nber.org/papers/w11193

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=274150

Article The Long-Run Drivers of Stock Returns: Total Payouts and the...

Dear Dariusz Prokopowicz ... thank you for your insightful comment... do you have a link to your study about the effects of the global financial crisis of 2008? Thank you

Dear Raymond A K Cox , thank you for a great comment and links... I appreciate it.

Apart from the psychology of stock markets it also has a lot to do with the financialisation of the markets (http://fessud.eu/wp-content/uploads/2012/09/Financialisation-Economy-Society-and-Sustainable-Development-An-Overview-Working-Paper-Series-No.206-April-2017.pdf) and the way central banks are currently pumping money into the economy.

We also need to look at terminology. When prices inflate in stock markets we talk about growth of the stock market and consider it as a good thing. When prices inflate in the real economy we talk about inflation and when that inflation gets too high it's a bad thing. But growth of stock markets is actually inflation according to the definition of inflation: a general rise in prices (https://www.investopedia.com/terms/i/inflation.asp). Some honesty would be good in this regard.

If we take the latter into account, this also explains why we don't see inflation in the real economy as a result of the massive amounts of money central banks have been pumping in the economy. All that money lands in the financial markets due to the funding mechanism of central banks: buying up debts in that financial market.

It thus should come as no surprise financial markets are booming while the real economy is shattered to pieces and why there is no inflation in that real economy.

"When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done" J.M.Keynes, The General Theory, p. 159. If interested in seeing from which kind of considerations such a conclusion is drawn cf. the whole chapter 12.

Market reaction can be wrong in the short-run and there will be a reaction in the longer-term.

people or investor always choose the easiest way to make /gain profit. secondary stock market are always in upward trends in any country regardless lower income r higher income countries. in real life you will never buy a pen of $1 at higher prices ;say at $10. but in stock market we are ready to sell a $1 share at any higher prices;even say; at a $100 !!!. yes; that's why a stock market investment may not be necessarily a real scenario of an economy. conversely; real economic investment such as producing goods and services are certainly most powerful for an economy than the stock market investment. thank you

This question is asked often, and in all types of environment, including among my academic colleagues. Unfortunately many try to address this with fundamental analysts factors that have no (or very little) influence on markets, this is particularly true in the US. The JMK quote from Mr. Salanti sums up a portion of the reason, however, the majority of this dislocation is Clearly illustrated by the investment style and vehicles of choice, passive and quantitative.

The use of passive investing has grown to represent the lions share of an investment universe that has been shrinking for a decade. Remember there are only half Of the Publicly traded stocks As there were 8 years ago. These are purchased primary in index related vehicles or by “active” managers that mirror indexes. The fact that most Americans invest only through retirement vehicles that employ only ETFs or similar vehicles, every month, regardless should provide you with an excellent insight. Review the top investment managers and you will find almost none are active, as mentioned prior, even those that are typically look like the benchmarks (albeit much higher fees). Im afraid any analysis that you may undertake here that relays on fundamentals is bound to have disappointing results, as this is now the realm of academics and a declining number of flailing managers.

That's a good question

The current COVID-19 pandemic has generated political, educational, social and economic changes around the world, in order to promote discussion, especially in the economic sector, we share the following manuscript.

Article Economy or Health, Constant Dilemma in Times of Pandemic: Th...

I am of the view that the stock prices in the market and GDP of the Nation tend to move together over time. As a researcher, we have to look as to what are the reasons for such a relationship. By doing research on such a relationship, one could find out the reasons for and assess the underlying direction of Causality.

I suggest that the Granger causality test may be used to examine causality direction.

There are many questions before researchers, but very few are as follows.

--> Does the Stock Market affect the GDP and Vice Versa?

--> Is the share price and GDP move in the opposite direction?

--> Is GDP trigger fluctuations in the stock market?

The stock market will always reflect the economic conditions of a Nation. If an economy is growing, then the outputs of the firms will be increasing, thus most firms may experience the increased profits. The higher profit of firm makes its shares more attractive because such firm can give higher dividends to its shareholders. The upward economic growth for a quite longer period would naturally tend to benefit the shares holders more.

By contrast, if the stock market predicts a recession, then share prices would generally fall down in anticipation of such trend. If the economy is expected to enter into a recession, then the price of stock in the markets would generally fall. Lower profits and fewer dividends would be a bad news for the shareholders.

It is true that in a period of uncertainty, the investors may prefer to invest their hard earned money in other financial assets like bonds for the better security and greater benefits by avoiding equity shares, because of the greater risk involved.

Sanel Halilbegovic This article may generate useful information.

https://www.quora.com/What-is-the-divergence-between-economic-activity-indicators-and-stock-market-performance

maybe watching this short video can help you achieve a better answer!

https://www.youtube.com/watch?v=hjBvoOail5w