Weak Productivity Hampers Stock Performance

U.S. equities appear poised to experience a bull market in 2011; however, analysts believe there will be no sustained market drive, known as a secular bull market, until one key indicator markedly improves. That indicator is productivity. Strong bull markets are propelled by long-term productivity growth, as a comparison of the accompanying Standard & Poor’s 500 index and U.S. worker-­productivity charts shows.

S&P performance was sustained during the bullish 1960s and 1990s in part because of solid productivity gains. Despite labor efficiencies of the past decade, American productivity has been in general decline. Moreover, other factors — including currency wars, bank reform and what analysts call “policy error” (read: politicians trying to improve markets) — will limit the potential for a strong run of the bulls anytime soon.