Mar 27 (edited) in Stocks
GDP predicts move in the S&P500
When there are 2X variables (A,B) only 4X outcomes can occur;-
- Variable A goes down and Variable B goes down.
- Variable A goes Up and Variable B goes up.
- Variable A goes down and Variable B goes up.
- Variable A goes Up and Variable B goes down.
These 2 variables I've been looking at is the S&P500 and GDP. We looking at quarterly GDP and comparing it to 6 month lagged data from the S&P500, the S&P predicts GDP with accuracy all the back since 1950
A - If both S&P500 and GDP were reported down, we assign a 0,0 and a score of 0.
B - If both S&P500 and GDP were reported up, we assign a 1,1 and a score of 2.
C - If S&P500 is reported down and GDP is reported up, we assign a 0,1 and a score of 1
D - If S&P500 is reported up and GDP is reported down, we assign a 1,0 and a score of 1.
Historically GDP explains 60.85% (1,1) + 8.19% (0,0) = 69.04% of S&P500 moves (When they move in the same direction)
The 0,0 (A) situation happens a total of 23 times out of the 281 Quarters and the 1,1 (B) situation happens a total of 171 times out of 281 Quarters.
When the S&P500 and GDP don’t move in the opposite direction, most of the time it’s because the S&P500 moves down and GDP doesn’t go down i.e. profit taking, price corrections whilst underlying GDP growth remains.
The 0,1 (C) situation happens a total of 72 times our of 281 Quarters and the 1,9 (D) situation happens only 15 times in 281 Quarters.
Only 5.34% of times has the S&P500 moved up and GDP has gone down since 1950. When you add 69.04% + 25.62% = 94.66% of cases. Scenarios A B & C, if we can predict those situations, we have massive odds in our favour. Even just being able to predict them both moving in the same direction gives us really good odds.
1
3 comments
GDP predicts move in the S&P500
skool.com/analyst-trading-group-5577
A private global community of professional level traders and statistical analysts mastering the markets as a community.
powered by