Relationship Between Macroeconomy and Stock Market in the United States

This paper aims to find out the relationship between the stock market and the macroeconomy. This paper finds that the GDP growth rate, M2 growth rate, and 10-year treasury bond yield growth rate are all the Granger causes of the S&P 500 index growth rate. In addition, for one unit increase in GDP_gr, M2_gr, the first lag usually leads to a significant increase in the current SP_gr, and the earlier lags lead to a significant decrease in the current SP_gr. For an increase in the yield_gr, the second and third lags all lead to a significant increase in the S&P 500 index growth rate. In this paper, we present findings to provide investors with a guide to forecast stock market fluctuations and to provide the government with guidelines for making fiscal and monetary policy decisions to enhance and stabilize the economy in the long run.