The Miracle Behind the Growth of The Stock Market
The growth we’ve experienced in the last four decades in the economy as well as in the stock market is nothing short of a miracle. I attribute much of this growth to advancements in technology- specifically computer processors.
Prior to the 1970’s computers were as big as refrigerators and operated in cool storage rooms. In these computer centers lab technicians long white coats scuttled about. They had received specialized training on how to run and operate these behemoth machine. Then came along Intel’s 4004 processor in 1971.
What Intel’s new processor accomplished was that it gave entree to the smaller computers. The new machines produced reduced in size to a mere 250 pounds. Two or three years later, the first personal computers were introduced by IBM, Compaq and Apple. By today’s standard the first personal computers were clunky and very limited in processor power- in fact the Intel 4004 processor could only computer 92,000 operations per second.
Despite this meager 92,000 operations per second Intel’s 4004 chip has given rise to a lot of technological innovations. We’ve come a long way since in comparison, the Apple’s M1 Max processor released in 2021 can run 10.4 trillion operations per second.
Advancements in Technology have had a huge impact not only on the economy, but also out the stock market. The seventh largest stocks in the S&P 500 at the close of the 2021 business last year, were all tech companies. They comprised an unprecedented 28% of the overall market index weight. Prior to 1975. The stock market returned 9% per year. Prior to 1975. Corporate profits grew at 4% per year, after 1975 corporate profits accelerated to a growth rate of 14% per year and the market return moved to above trendline annualized return of 12%.
The impact that technology has had on us is nothing short of a miracle- not only from the standpoint of the economy but also from the standpoint of the stock market.
This article is adapted from an exclusive interview with Robert Zuccaro August 2022.
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