How Do GDP Changes On A Quarterly Basis Affect The S & P 500 Index?

Statistics Project
XUEZHANG, ZHANG
12/6/2017
Research question.
How do GDP changes on a quarterly basis affect the S & P 500 Index (SPX)? While predicting the future value of the index is difficult, when there is a relationship between the two this indicates there is robust growth. Efforts to improve the business climate and expand the economy have different effects on the economy depending on the policy and the economic conditions, and the challenge then is to choose the right mix of policies. The government officials, business people, and individuals look at economic data to make decisions.
While various macroeconomic factors affect the economic outlook, positive business sentiments can result in the S&P 500 rallying bead on expectation that there will be positive change. Since President Trump was elected on Nov 2016, the stock indices have on an upward trend and the economic outlook is better than the previous quarters. While the S & P was still rising before he took the presidency, growth has been better. The unemployment is lowest in over a decade and there is higher consumer spending, and in looking at the quarterly effects of GDP changes on the S &P 500 index the short-term effects on the economy are considered.
Stock volatility affects the stock evaluation as is expectation about future economic and company performance. This can result in the discrepancy between the stock market and the GDP performance. Other factors directly related to stock valuation are dilution and dividends and this may explain how the stock market indices sometimes outperform the economic growth. The real gross domestic product (GDP) has mostly grown less than 3% annually after the 2009 global financial crisis, but the S&P 500 has even grown by more than 10% (White & Buchbinder, 2014). When stocks are diluted capital growth tends to be lower than the corporate earnings, and sometimes whether are no dividends it is like the stocks are traded at a discount. When there are increased M & A activities, there are higher stock valuations, which do not necessarily affect the real economy.
Market volatility affects the stock returns, and this is especially when the prices fall, and volatility then determines investor sentiments on whether to bid for specific securities. Since the S & P 500 index contains the stocks of the larger cap organizations, these companies can weather the effects of a decline in stock exchanges in the short-term. However, for the small cap companies and those with little or no financial leverage a small price change may cause volatility. There is...