Explaining US stock market returns from 1980 to 2005: Implications for the next 25 years

Abstract

This paper uses economic data, political events and social developments to explain the extraordinary US stock market performance from 1980 to 2005. Six variables seemed to be working for the stock market during this period: (1) the boom in international trade due to globalisation; (2) demographics — baby boomers; (3) the credit boom; (4) the technology boom; (5) decreasing interest rates; and (6) geopolitical stability for most of the period. Resulting side effects such as trade deficit, budget deficit, and low US savings rate, however, point to a different direction for the stock prices during the next 25-year period.