Long Term Stock Market Drivers

Michael Markowski interview about math of the market, 4:06

Since inception stock market valuations have been driven by: 

  • Inflation 

  • Population growth

From 1914 to 2019 US inflation averaged 3.25% and population growth averaged 1.97%. 

The combined 5.22% coincided with the compounded annual growth rates for the S&P 500 in all of the periods from 1928 to 2018 in the table below.   

Unless the US population growth rate of 0.62%, the lowest since 1933 and rate of inflation reverse their down trends the returns from the stock market for the decade ending 2030 are likely to be low.

Japan is a good example of a country whose stock market has underperformed due to declines in population and inflation.

Since peaking in 1974, Japan’s inflation has steadily declined.

 Japan’s Nikkei 225 stock market index has yet to exceed its 1989 peak.