Can stocks appreciate faster than the economy grows?

A question from Yahoo! Answers:

Is it possible for the stock market to rise in value at a greater rate than the economy?

Yes. You seem to be thinking only of GDP and completely forgetting the capital stock…

For example, at the beginning of fiscal 2006, the total capital stock in the U.S. economy (at current cost, including residential buildings) was about $30 trillion. During fiscal 2006, that capital stock earned about $2.8 trillion in interest, dividends, rents, and proprietors’ income. So overall, the U.S. economy earned a 9.3% return on investment. Since creditors consistently earn less than that (after adjusting for defaults), stockholders must earn more (in the long-run, anyway). The reality concurs; in the long-run, the U.S. stock market delivers approximately 12% per annum, of which approximately 2% come as dividends with the remaining 10% being capital gains (or, in your terms, the “rise in value”).

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