Recently, my YouTube feed displayed a new video of economists Art Laffer and Steve Hanke discussing the current state of the world economy and its outlook. It reminded me why the Canadian economy may be struggling so much versus the U.S., and by extension, our equity market.
found a correlation of more than 80 per cent between growth in gross domestic product and corporate earnings growth over the last decade. It may take some by surprise that between the mid-1960s and the beginning of the 1982 secular bull market, the S&P 500 Index fell by about 50 per cent, adjusted for inflation. The period that followed, as the Reagan era took hold, provided much more consistently strong returns for the U.S. benchmark.
Canada has high government spending relative to 50 years ago per capita and adjusted for inflation. This is even true if adjusted for GDP growth. A society with increasing wealth should see spending for each person go down due to people needing less assistance and infrastructure economies of scale.