Can the stock market outperform the economy?

water_skipper: Can the stock market outperform the economy?
Can the stock market outperform the regular market (economy)? There’s something I don’t understand. Let’s say there’s 100 corporations and those corporations control the entire economy. Let’s say those corporations each have a PE of 20. Now let’s say over 100 years, the economy has grown at an annual rate of 6%. If their PEs are still 20, then wouldn’t that have meant their stock value has grown at an annual rate of 6% too. I know this is a simplified example, but I just don’t understand how “the economy” can grow at a different rate than “the market.” Long answers are welcome, if they’re understandable.

Answers and Views:

Answer by Matthew O
Speculation can drive the price of the stocks far, far higher than the earnings of the stocks. That means that the prices on the stock market can go a lot higher than the actual production of goods and services in the general economy. That’s when the market is overpriced. At such a time, it would look like the market outperformed the economy, as you put it. Of course, eventually there will be a correction.