Is the stock market's growth largely anything more than inflation?

Yes, stock market growth is largely driven by the real growth in earnings and dividends.

Nominal figures are not adjusted for inflation. "Real" numbers are adjusted for inflation (in economics-speak).

The stock market (e.g. S&P 500 index) has real earnings that have consistently grown over time (although earnings are quite volatile). The real dividends paid by the companies that make up the stock market have also grown over time.

Jeremy Siegel, a finance professor at Wharton, wrote a great book called Stocks for the Long Run that shows stocks have grown about 7% per year (inflation adjusted) over the last 200 years.

> What would the market look like if we corrected for the money supply?

I think it's better to correct for inflation. The money supply can grow and it doesn't necessarily cause inflation (see the 2008 monetary response to the Great Financial Crisis as an example).

> It seems like the stock markets (USA) growth is strongly correlated to inflation

I'm not sure this is true. In the 70s, inflation was high and stock returns are low. In the 90s, inflation was low and returns were high. In 2021, inflation was high and returns were high.

> The more money the government prints the more the stock market goes up. So the market doesn't actually represent value in a company but instead debt owed to somebody else.

The second sentence doesn't follow from the first. Owning stock literally means owning part of a company. Now the worth of that ownership is determined by what people are willing to pay, and what people are willing to pay is subject to all the whims of human judgement. The money supply is just one piece of that though, it's not the end-all-be-all (not for stocks, and not even for "inflation"). For one thing, the perception of the money supply and the stock market as a whole are major influences, but the fortune and perception thereof of individual companies will move related to its performance which over time will diverge from broader macroeconomic trends.

I think that the stock market's rise since the 90s has been a very particular kind of inflation. It's a classic case of benchmark hacking.

At some point, journalists and media decided that the stock market indices are a good indicator of the economy. It's convenient. They don't have to actually investigate anything to see how the economy is doing - they just look at one number.

That's been the economy's benchmark for decades. I think that around the 90s, regulators started to bias their behavior based on this observation. These are people who tend to lose their jobs when the economy crashes and fails to swiftly recover. Nevermind that the stock market crashing doesn't necessarily mean that the economy crashed. But I think they realized that if they make choices that result in the stockmarket going up, then they get to keep their jobs (or they even get praised for being oh so smart).

So. We have a kind of inflation. It's really a case where the benchmark that is being reported as "the status of the economy" is being actively hacked by regulators. Given any opportunity to intervene, they will carefully finetune the intervention with the singular purpose of making the benchmark look good.

So. We have been getting poorer since the 90s while the stockmarket has been skyrocketing in a historically unprecendented way. These are two sides of the same coin, and that coin is that the purpose of modern monetary and fiscal policy in democratic countries is to elevate the stockmarket even if it makes everything else go to shit. They do this because they know that then, journalists will report that the govt is doing a Great Job and the regulators get to keep their jobs.

> The more money the government prints the more the stock market goes up.

I'm not an economist, but I have some speculation (no pun intended):

When the government prints money, most of it ends up with the rich. The smart rich know that it's unwise to have lots of money lying around, so they buy investment assets, like real estate and stocks.

When quantitative easing started in 2008-ish, guess what got more expensive? When COVID hit and money printer go brrrr, what got more expensive?

There are several components that make up long term stock returns (from a macro level):

- Population growth

- Growth in productivity per capita

- Dividends

- Inflation

It used to be that populations were growing and productivity was increasing and dividends were high (becuase PEs were normal). Those days are all over. You can forget about seeing any return above inflation. Population growth has slown to 0.5% (down from about 1.5%+). Productivity per capita is almost 0 for the last 20 years (down from 2% per year for the last 200 years prior). Dividends which used to be 4.5% in the 60s+ and 6%+ at 1900-1950 are now down to about 1.3%.

So, the answer to your question, at least going forward from here is NO, it's mostly just going to be inflation plus 1.3% from dividends. Note, this was not the case for the last 100 years.

> What would the market look like if we corrected for the money supply?

It would look like it does right now! You're almost asking the right questions, but not quite. People look at stretched valuations and high price to equity ratios and other metrics, to forecast doom and gloom (big selloffs). It is true that earnings have not increased with prices for quite some time. But there is are decent metrics to track this kind of thing (which you won't find in Technical Analysis books from 40 years ago, so just burn those), one metric is to look at the price to equity ratio to treasury bill interest rate spreads.

During money supply expansion, whoever has access to cheap money then goes and buys stocks (amongst other things), hoping to increase that cheap money faster than the money is given to other people (diluting the purchasing power of the money the last person received). Many times these people are publicly traded corporations, who buyback their own stock, or their shareholders who also increase their positions in the same source of wealth. There is a psychological component, and when people say that, it really relies on identifying who the biggest movers in the market is and what they do and why. Hope that helps.

Historically, U.S. stock market returns have exceeded inflation substantially -- there is data at https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile... . Inflation can increase corporate profits in nominal terms, but usually it also leads to higher interest rates and lower price/earnings yields, as bonds become more competitive with stocks. I believe that after-inflation returns of stocks have tended to be highest when inflation is low but not negative.

I think starting from QE the market basically is just a plaything of whoever have access to cheap $$. In many occurences bad news were good news for the market because Fed would drop the idea of tightening, and vice versa.

Just my 2 cents. I'm not a professional anyway.

Inflation isn't a single number. It's reported as a single number because anything more doesn't fit into a headline.

Different things inflate in different amounts. Right now the inflation on fuel is much higher than the inflation on tomatoes or hotel prices where Russian instagirls used to visit.

When central banks started printing money, people didn't bid the price of bread, butter or automobiles up. So this didn't register as a increase in the cost of living (except for housing, which they did indeed bid up).

This central bank money went to financial assets like stocks. That is why the price increases in stocks have been faster than the price increases in consumer products.

Over time, humans produce capital. Insofar as this capital is productively deployed, one should expect the total amount of capital stock to increase.

The stock market represents only a part of the total capital stock, as not all capital is owned by companies, and not all companies are public. But, on the whole, one should expect the stock market to rise over time so long as society is not dying.

Imagine a stock market where shares _had_ to be held for at least a week. Possibly even one where each day it was a dutch auction match of buyers and sellers during the overnight accounting.

I think this would be a healthier form of investing in the ownership of companies.

> The more money the government prints the more the stock market goes up.

This printing nonsense forgets that accounting is a two sided relationship ...

Yeah sure the government does something but did it initiate or did it respond to something someone else initiated.

Instead of arguing the government did something, you can equally argue that the private sector did the opposite. Remember the earn more than you spend story that everyone is supposed to follow? It is obviously impossibly because where is the saved money coming from? Someone needs to obligate themselves to be liable for those savings and it turns out the government wants to be liable.

If the stock market is booming, expect it to be the result of people earning and therefore producing more than they spend and therefore consume. The excess has to be invested somehow and the most prominent investments are available on the stock market. That is the reason why the stock market is going up so high and interest rates are so low. Lots of people producing and investing the surplus. Not many consuming the surplus.

The moment people produce and save but don't invest, you get deflation which generally results in unemployment and debt defaults which is undesirable. So the government acts as the borrower or consumer of last resort.

What would the market look like if we corrected for the money supply? You would see negative or zero yields in the stock market.

My unsubstantiated view is the growth of broad market index funds. Because billions coming in to buy and hold, why would it drop value?

The stock prices are nominal and therefore assuming the same real stock return, the nominal prices will go up under higher inflation.

That is not how inflation works. Anyone complaining about the government printing money has an incredible naive view on the economy.

>It seems like the stock markets (USA) growth is strongly correlated to inflation.

> So the market doesn't ...

No, your conclusion does not follow at all. That is like saying "if it rains the floor gets wet. So if I dump a bucket of water on the floor, it is going to rain."

By growth, do you mean the price of stocks or actual earnings?

Also, inflation rate is separate from the money supply. People have to be willing to spend and invest. If they're not willing to spend or invest then the prices of goods just stay the same or worse they begin to deflate. If you ever have a chance, then read about Japan's Lost Decades. Warning: you might get freaked out - https://en.m.wikipedia.org/wiki/Lost_Decades

There are actually a lot of scenarios that COULD happen to the stock market with a growing money supply; however, it's really hard to say if those implications will happen until they actually happen.

In general, the implication of a growing money supply just means that money becomes cheaper to borrow. When money becomes cheaper and you have the means to borrow it, then you have an advantage to take more risks.

The implication on the market CAN be the overvaluation by investors if they are borrowing and investing the money into stocks on exchanges like NYSE and NASDAQ, and have nowhere else to invest. There is a lot of retail investors and institutional investors that are borrowing due to cheap money - https://www.barrons.com/amp/articles/people-keep-borrowing-m...

Important thing to note though is the implication on those companies in the market. Some of them (not all of them) are able to borrow and invest the money to grow their businesses to makeup for what they borrowed. That in turn would increase the value of those companies, which in turn CAN increase the value of the market.

It could also be that those same companies are borrowing just to pay off debts. They don't use the money to actually invest which in turn would not lead to any growth and never have enough earnings to give investors.

Overall, it's really hard to know what the implications are until things actually happen.

Inflation is (over a long enough time) embedded in stock price, since what you own is really a share of the production and assets of the firm you purchased a share in...it only happens to be denominated in dollars. If a firm you bought stock in is in the business of making shoes, and it is making a larger number of well-received shoes, regardless of the price level for shoes (and the price level of the stock), this kind of stock will generally appreciate in real terms.

In principle, the denominating currency does not matter: someone could give you some number of shoes for your share, and your dividends could likewise be in shoes. We tend to find it more convenient to work in dollars.

Not all companies (stocks) have the same sensitivity to inflation. Depends on all sorts of things that are business specific. One example is how easily price increases from suppliers can be passed on to customers. A company that sells a commodity into a very liquid market won't suffer as much.

At the other end of the spectrum, inflation decreases the real value of future cash flows, so tech stocks have been hammered. Here's an explanation I like: https://fullstackeconomics.com/rising-interest-rates-are-ham...

It's not inflation inflation. It's somewhat due asset class "inflation" (really overvaluation). There's tons of money looking for a productive place to park. With interest rates low and inflation high, stocks are one of the few place to put money that it actually makes something. You also have trillions of various assets being held by the Fed, which includes billions in ETFs. The market is overvalued by most measures right now.

You might be interested in reading some value investors, like Jeremy Grantham, for example. Most see it as a kind of longer-term bubble that can be propped up in various ways and has nothing to do with the fundamentals of companies (which is what you or your funds should actually care about.)

Mostly not. About 90% of the US economy is engaged in non-productive value-destroying work. (Middlemen, govt, corporate nonsense.) The tech sector is the only exception broadly speaking and it powers the whole world. For the rest we have bombs to back it up.

This graph of M2 and the Wilshire 5000 might be of some interest: https://fred.stlouisfed.org/graph/?g=Q311

Growth? Didn't the markets go down a lot? Or were those just Russian ones?

I don't follow individual stocks a ton, since I have index funds, but I'm not sure I follow your question OP.

There's no other place to park cash right now. Central banks have zero and some negative interest rates. Having cash on bank is very expensive so the stock market is the new bank.

Economic growth does seem to track population growth (globally). Once population decline begins, will be interesting to see what happens.

What about population growth? Is the stock market a big Ponzi scheme? Guess who’s holding the bag?

Institutions pumping huge loads of 401K money every pay period also props the scheme up

Stocks have gone done recently while inflation has gone up..

Post on whether returns are correlated to inflation: https://awealthofcommonsense.com/2021/10/inflation-vs-stock-...

tl;dr if there is any correlation, it is weak

actually buybacks