Analyzing the relationship between economic indicators and the S&P 500 Index can offer valuable insights into how various factors influence stock market performance. One effective approach to examine these relationships is through the use of Pearson correlation, a statistical measure that quantifies the strength and direction of the linear relationship between two variables.

For each quarter of the years between 2000 and 2024, the Pearson Correlation Coefficient analysis reveals how different economic factors are related to changes in the S&P 500 Index. Positive correlations suggest a direct relationship, while negative correlations suggest an inverse relationship.

Overall Insights Across All Quarters:

• Positive Correlations: Intellectual property products, gross domestic product, and state and local expenditures generally show consistent positive correlations with the S&P 500 across multiple quarters. Services and personal consumption expenditures also tend to have a positive relationship with the S&P 500 in most quarters.

• Negative Correlations: National defense and federal spending consistently show negative correlations with the S&P 500 across all quarters, though the strength of these correlations varies. Nondefense spending and equipment expenditures also demonstrate negative relationships in several quarters.

Key insights for each quarter are as follows:

Quarter 1 Insights:

Positive Correlations:

• Intellectual property products (0.420) and structures (0.403) show moderate positive correlations with the S&P 500 Index.

• Fixed investment (0.344), gross domestic product (0.334), and nonresidential expenditures (0.330) also have moderate positive correlations.

• State and local expenditures (0.208), imports (0.182), and residential expenditures (0.172) show weak positive correlations.

Negative Correlations:

• National defense (-0.272) has a moderate negative correlation with the S&P 500 Index.

• Exports (-0.093), government consumption expenditures (-0.069), and federal spending (-0.037) also have weak negative correlations.

Overall Insight: Intellectual property products, structures, and investments are moderately aligned with the performance of the S&P 500 in Quarter 1, while national defense spending tends to move in the opposite direction.

Quarter 2 Insights:

Positive Correlations:

• State and local expenditures (0.138) and intellectual property products (0.110) show weak positive correlations with the S&P 500 Index.

• Nondurable goods (0.083) and durable goods (0.068) also have very weak positive correlations.

Negative Correlations:

• Exports (-0.265) and national defense (-0.249) have moderate negative correlations with the S&P 500 Index.

• Goods (-0.214) and gross private domestic investment (-0.186) are also negatively correlated.

Overall Insight: State and local spending, as well as intellectual property products, tend to move in the same direction as the S&P 500 in Quarter 2, while exports and national defense spending tend to move in the opposite direction.

Quarter 3 Insights:

Positive Correlations:

• State and local expenditures (0.554) and gross domestic product in current dollars (0.440) have strong positive correlations with the S&P 500 Index.

• Services (0.403), gross domestic product (0.373), and gross private domestic investment (0.359) also demonstrate moderate positive correlations.

• Personal consumption expenditures (0.282), nondurable goods (0.247), and exports (0.247) have weak positive correlations.

Negative Correlations:

• Nondefense spending (-0.258) shows a moderate negative correlation with the S&P 500 Index.

• Federal spending (-0.149) and equipment expenditures (-0.076) also show weak negative correlations.

Overall Insight: State and local expenditures, along with GDP and private investments, tend to move in the same direction as the S&P 500 in Quarter 3, while nondefense and federal spending are inversely related.

Quarter 4 Insights:

Positive Correlations:

• Gross domestic product in current dollars (0.480) and gross domestic product (0.399) have strong and moderate positive correlations, respectively, with the S&P 500 Index.

• Intellectual property products (0.385), personal consumption expenditures (0.312), and services (0.306) also show moderate positive correlations.

• Exports (0.265), goods (0.262), and imports (0.256) have weak positive correlations.

Negative Correlations:

• Federal spending (-0.033) shows a very weak negative correlation with the S&P 500 Index.

• National defense (-0.028) and nondefense spending (-0.005) also show very weak negative correlations.

Overall Insight: GDP, intellectual property products, and consumer spending tend to move in the same direction as the S&P 500 in Quarter 4, while federal, national defense, and nondefense expenditures have weak inverse relationships.