Since equity values are demonstrably more variable than incomes, when equity market values become large relative to incomes and GDP, their fluctuations can be expected to effect GDP more than when equity market values are low. Clearly, the history of large swings in investor confidence and equity premiums for rational and other reasons counsels caution in the current context.
We have relearned in recent weeks that just as a bull stock market feels unending and secure as an economy and stock market move forward, so it can feel when markets contract that recovery is inconceivable. Both, of course, are wrong. But because of the difficulty imagining a turnabout when such emotions take hold, periods of euphoria or distress tend to feed on themselves.