Markets
2,000 Years of Economic History in One Chart
Over 2,000 Years of Economic History in One Chart
All major powers compared by GDP from the year 1 AD
The Chart of the Week is a weekly Visual Capitalist feature on Fridays.
Long before the invention of modern day maps or gunpowder, the planet’s major powers were already duking it out for economic and geopolitical supremacy.
Today’s chart tells that story in the simplest terms possible. By showing the changing share of the global economy for each country from 1 AD until now, it compares economic productivity over a mind-boggling time period.
Originally published in a research letter by Michael Cembalest of JP Morgan, we’ve updated it based on the most recent data and projections from the IMF. If you like, you can still find the original chart (which goes to 2008) at The Atlantic. It’s also worth noting that the original source for all the data up until 2008 is from the late Angus Maddison, a famous economic historian that published estimates on population, GDP, and other figures going back to Roman times.
A Major Caveat
If you looked at the chart in any depth, you probably noticed a big problem with it. The time periods between data points aren’t equal – in fact, they are not close at all.
The first gap on the x-axis is 1,000 years and the second is 500 years. Then, as we get closer to modernity, the chart uses mostly 10 year intervals. Changing the scale like this is a big data visualization “no no”, as rightly pointed out in a blog post by The Economist.
While we completely agree, we have a made an exception in this case. Why? Because getting good economic data from the early 20th century is already difficult enough – and so trying to find data in regular intervals before then seems like a fool’s errand. Likewise, a stacked bar chart with different years also doesn’t really do this story justice.
We encountered similar historical data issues in our Richest People of Human History graphic, and at the end of the day decided it was primarily for fun. Like today’s chart, it has its share of imperfections – but ultimately, it provides a great amount of context and serves as a conversation starter.
Our Interpretation
Caveats aside, there are many stories that materialize from this simple chart. They include the colossal impact of the Industrial Revolution on the West, as well as the momentum behind the re-emergence of Asia.
But there’s one other story that ties it all together: the exponential rate of human economic growth that occurred over the last century.
For thousands of years, economic progress was largely linear and linked to population growth. Without machines or technological innovations, one person could only produce so much with their time and resources.
More recently, innovations in technology and energy allowed the “hockey stick” effect to come into play.
It happened in Western Europe and North America first, and now it’s happening in other parts of the world. As this technological playing field evens, economies like China and India – traditionally some of the largest economies throughout history – are now making their big comeback.
Editor’s note: We have adjusted the main graphic as of Sep 10, 2017 to change the description of the chart. It now says “Share of GDP (World Powers)” instead of the previous “Share of world GDP”, which was technically an inaccurate description.
Markets
Beyond Big Names: The Case for Small- and Mid-Cap Stocks
Small- and mid-cap stocks have historically outperformed large caps. What are the opportunities and risks to consider?
Beyond Big Names: The Case for Small- and Mid-Cap Stocks
Over the last 35 years, small- and mid-cap stocks have outperformed large caps, making them an attractive choice for investors.
According to data from Yahoo Finance, from February 1989 to February 2024, large-cap stocks returned +1,664% versus +2,062% for small caps and +3,176% for mid caps. Â
This graphic, sponsored by New York Life Investments, explores their return potential along with the risks to consider.
Higher Historical Returns
If you made a $100 investment in baskets of small-, mid-, and large-cap stocks in February 1989, what would each grouping be worth today?
Small Caps | Mid Caps | Large Caps | |
---|---|---|---|
Starting value (February 1989) | $100 | $100 | $100 |
Ending value (February 2024) | $2,162 | $3,276 | $1,764 |
Source: Yahoo Finance (2024). Small caps, mid caps, and large caps are represented by the S&P 600, S&P 400, and S&P 500 respectively.
Mid caps delivered the strongest performance since 1989, generating 86% more than large caps.
This superior historical track record is likely the result of the unique position mid-cap companies find themselves in. Mid-cap firms have generally successfully navigated early stage growth and are typically well-funded relative to small caps. And yet they are more dynamic and nimble than large-cap companies, allowing them to respond quicker to the market cycle.
Small caps also outperformed over this timeframe. They earned 23% more than large caps.Â
Higher Volatility
However, higher historical returns of small- and mid-cap stocks came with increased risk. They both endured greater volatility than large caps.Â
Small Caps | Mid Caps | Large Caps | |
---|---|---|---|
Total Volatility | 18.9% | 17.4% | 14.8% |
Source: Yahoo Finance (2024). Small caps, mid caps, and large caps are represented by the S&P 600, S&P 400, and S&P 500 respectively.
Small-cap companies are typically earlier in their life cycle and tend to have thinner financial cushions to withstand periods of loss relative to large caps. As a result, they are usually the most volatile group followed by mid caps. Large-cap companies, as more mature and established players, exhibit the most stability in their stock prices.
Investing in small caps and mid caps requires a higher risk tolerance to withstand their price swings. For investors with longer time horizons who are capable of enduring higher risk, current market pricing strengthens the case for stocks of smaller companies.
Attractive Valuations
Large-cap stocks have historically high valuations, with their forward price-to-earnings ratio (P/E ratio) trading above their 10-year average, according to analysis conducted by FactSet.
Conversely, the forward P/E ratios of small- and mid-cap stocks seem to be presenting a compelling entry point.Â
Small Caps/Large Caps | Mid Caps/Large Caps | |
---|---|---|
Relative Forward P/E Ratios | 0.71 | 0.75 |
Discount | 29% | 25% |
Source: Yardeni Research (2024). Small caps, mid caps, and large caps are represented by the S&P 600, S&P 400, and S&P 500 respectively.
Looking at both groups’ relative forward P/E ratios (small-cap P/E ratio divided by large-cap P/E ratio, and mid-cap P/E ratio divided by large-cap P/E ratio), small and mid caps are trading at their steepest discounts versus large caps since the early 2000s.
Discovering Small- and Mid-Cap Stocks
Growth-oriented investors looking to add equity exposure could consider incorporating small and mid caps into their portfolios.
With superior historical returns and relatively attractive valuations, small- and mid-cap stocks present a compelling opportunity for investors capable of tolerating greater volatility.
Explore more insights from New York Life Investments
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