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A stronger economy could be a mixed blessing for US equities

A stronger economy would clearly be better news for the US stock market than another recession. But it might not provide much of a boost to share prices if the labour market becomes too tight. If history is any guide, a decline in the jobless rate to less than its “natural” level would result in a cyclical increase in labour’s share of income. The flipside would be a decline in the profit share, with the result that the value of the stock market would probably grow more slowly than the economy itself.

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