Why does the stock market grow faster than the US or the world economy?

The stock market is supposed to be a reflection of the economy. But the US or the world economy grow at a much slower rate than that of the stock market. Will this trend continue forever, barring a few bear years?|||The FED drives equities higher. It can't fix structural problems.|||The valuation of a stock has changed over time.





A long time ago, the price of a stock was supposed to be liked to the present value of the stream of payments you'd expect to receive over time. This encompassed the dividends as well as the stock price, which was again linked to future performance. It also reflected the risk involved.





However, over the recent years, this has changed. The price people are willing to pay for a stock is basically linked to how much they think they can sell the stock for; it is more speculative rather than based on facts. That's why traditional measures such as Price Earnings ratios, are vary varied among different stocks irrespective of the risk.





The value of stocks, and the stock indices are more an indication of what people expect. If they expect good times, stock prices go up across the board, and vice versa. The fluctuations in the stock market are larger than the economy itself sice it is possible to use the current value of a stock portfolio as collateral for borrowing. If you believe the stock market is going up, you manage to get your hands on some extra cash, wouldn't you reinvest it in the stock market. This magnifies the ups and downs of the stock market.





Hope that helped.|||A stock is a share of a business that makes profits and they pay dividends as your share of the profits and use the rest to expand to meet the need of a growing economy which increase the stock price Broad stock indexes do not grow faster than the economy if you look very long term, it only seem that way if you look at the data from recent decades. The inflation of the 70's caused stock prices to fall relative to GDP and when the inflation subsided stock prices rose to recover their lost value. The S%P index GDP ratio is about the same now as it was the last time we had and an extended period low inflation in the 1960's and even in the 1920's. The chart only goes back to 1970 but it does illustrate what has been happening. The peak in the late 90's is the dot com bubble http://www.economagic.com/em-cgi/charter鈥?/a>|||Do you understand what the stock market it is?


http://en.wikipedia.org/wiki/Stock_marke鈥?/a>


It is sort of economic bubble by means of the creating the nominal value and hard to understand derivatives.


http://www.fintools.com/docs/Warren%20Bu鈥?/a>


The US economy is based on the wrong Keynesian approach of macroeconomics which has nailed by many scholars and economists.


http://search.yahoo.com/search?p=Many%20鈥?/a>


US treasury should have implemented the good and save policy by the once Nobel Prize winner, Milton Friedman argued that the inflation is the monetary phenomenon. If so, America wouldn't have turned from the No. 1 world creditor to become the No. 1 debtor.


http://www.oswego.edu/~edunne/340chapter鈥?/a>


Are you aware that America has already bankrupt?


http://search.yahoo.com/search?p=Is%20Am鈥?/a>


Why many gamblers have lost their life savings so quick in the casino, race track, or stock market investment. Its only because the human sins of greed and selfishness, coupled with the most of their ignorance.


Do you have the good intent to save the global economy? If so, you should suggest to your president or prime minister to follow what the once best premier of China, Zhu Rongji. His good deeds included the elimination of 14 million China civil servants worked for the China Enterprises country wide and additional one million members of the Liberation Army was the ways of turning the China economy from bad to stablized and with the annual GDP growth exceeded 10% for more than one decade and still on-going good. The great Zhu Rongji did bust the economic bubbles of the China stock market and real estate completly and turned China into a corruption free China during his regime.


England has the intent to cut the military spending now.





http://search.yahoo.com/search?p=Zhu%20R鈥?/a>


America is no longer afford the cost of the Iraq war for the bill of one billion US dollars per day.


http://cintabuku.com/three-trillion-doll鈥?/a>


http://search.yahoo.com/search?p=Clearin鈥?/a>


I personally think America is obliged to destroy the US and global stock markets directly and indirectly, but wisely. The NY Dow Jones and Hong Kong Heng Sang index must be declined to 4,000 and 8,000 respectifully, the sooner the better.|||not sure if this answers your question but it might have to do with the fact money is becoming worth less and less because our country's debt is increasing