If the US stock market rises 10%/yr for more than 100 years while GDP rises only 3.3%?

Question

Shouldn't almost the entire economy eventually become stock market?

Similar to what happens in your portfolio after many years if you don't rebalance it between stocks and bonds.

Answer 1

First off
-subtract inflation
-the stock market works off of perceived value, so if the market falls, the stock market will fall faster.

Answer 2

the S&P index , which represents the market cap of companies, increased the same percentage as the nominal GDP since 1950. Part of a companies profits are reinvested and increase the companies value and part are paid in dividends. The difference in the return for stocks and the growth rate of GDP is due to dividends paid to stockholders and spent by them. When looking at shorter times the effect of interest rates on stock prices from portfolio effects explain most of the difference, but their are also bubbles and random noise, A very large fraction of the economy is is generated by companies that are included in the S&P and has been during the entire period, which is why they grow at the same rate.