The GDP and the Stock Market

Today in class we discussed the GDP (Gross Domestic Product) and how it is calculated. Four times a year some group of economists and mathematicians get together and calculate the GDP and then publish it. Last Friday they released the report which said that the GDP was up by 5.7%. So the GDP is just a number that measures the well being of the economy, it doesn't actually effect the economy, right?
I read an article in the New York Times about the closing of the stock market at the end of January. It said that overall the market was down and listed a number of reasons. However, it also said that there had been an initial rise after the release of the positive GDP report reassured investors' faith in the economy. Then stocks drooped again as investors took a closer look at the GDP report and saw that most of the growth was from firms restocking their inventories.

''The GDP report looks shiny and new on the surface,'' said Alan Gayle, senior investment strategist for RidgeWorth Investments. ''But once you open up the hood, you start to see it's not as great as on the outside.''

These uncertainties caused stocks to drop again. The expectations of Investors based off the GDP report affected prices. As we learned about earlier expectations affect both producers and consumers. But I had no idea that people would base their expectations off the GDP. Without getting to far into the mechanics of the stock market, is it reasonable of investors to base their expectations on the GDP? After all that we learned about the GDP in class, what are the advantages and disadvantages in using this number in our financial markets?