“The American stock market has continued at an unsustainable pace for more than twenty years”

Lhe American stock market machine impresses, questions, annoys, or spites. Already almost 22% increase since the start of the year for the S&P 500 [qui représente les grandes entreprises américaines] (dividends included), after 27% in 2023. The Covid crisis is far behind. Previous crises were also quickly forgotten.

For almost a hundred years now, the American stock market has been driving the counters wild, increasing each year by almost 7% beyond the cost of living (inflation), according to data from Professor Robert Shiller. Blessed bread forhomo economicus American.

However, almost twenty years ago, a number of experts with a strong pedigree (in 1999 and again in 2005) warned that the American stock market would no longer be able to progress at the same pace for years to come. A pace deemed incompatible with the slowdown in economic growth anticipated by the authorities “competent”. The experts were almost right, since two major crises then occurred. The technology stocks crisis in 2000, then that of subprimes in 2008. The stock market lost nearly 50% each time… but only to start again with a vengeance afterwards!

Economists who are too pessimistic

More than twenty years later, we are at the same point, or worse. American growth has slowed down, but not the stock market. Exuberance has become gaping. The economic scenario has changed little or not at all. By the end of the century, economic growth should peak at 2%, given lastingly low growth in the active population (retiring baby boomers and low birth rate), and a reluctance to bet on a strengthening trend in labor productivity after disappointing years. But the stock market maintains its cruising speed at more than 7% per year above inflation.

The experts’ verdict has therefore not changed.

Either investors are deluding themselves, and must significantly lower their expectations in terms of performance for the years to come.

Either economists are too pessimistic, and must revise upwards the economic growth anticipated for the decades to come. Unless there is some way to reconcile the two readings?

Share repurchases

Among the fictions proposed, there is first of all economic theory. The latter does not claim to make such a direct link between the performance of the markets and that of the economy. Thus, the main growth models retained by academic research show that the rate of return (on capital, or on the risk-free asset, or on a risky asset, depending on the case) can very well resist a drop in potential economic growth, but under certain conditions. Remarks in theory admissible, but in practice have become irrelevant: the sustained rhythm of the American stock market no longer has anything to do with that of the economy. Such a gap borders on antinomy!

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