The current discourse surrounding a potential decline in US productivity and its subsequent impact on stock market gains, particularly for closed-end funds (CEFs), is largely overblown. While productivity growth plays a role in stock market performance, contributing roughly 2% to the S&P 500’s annualized 10.4% gain since the late 1980s, a deeper analysis reveals a more nuanced picture. The fear that demographic shifts, specifically an aging population, will stifle productivity is not supported by historical data.
The Bureau of Labor Statistics defines productivity as the efficiency gains achieved by private companies through technological advancements, economies of scale, resource allocation, and improvements in labor, management, and infrastructure. Over the past 40 years, US productivity has grown at a steady rate of 0.8% annually. This consistency, despite an accelerating aging population, suggests that American businesses continue to find innovative ways to optimize output. The age-dependency ratio, which compares the population over 64 to the working-age population (15-64), has risen, particularly in the last 20 years. However, this demographic shift hasn’t correlated with a slowdown in productivity growth, contradicting the narrative that an aging population inherently hinders productivity.
Comparisons with Japan, a country with a significantly higher age-dependency ratio, further debunk the demographic argument. While Japan experienced stagnant productivity since the late 1980s following an economic bubble burst, this stagnation began when its age-dependency ratio was considerably lower than the current US level. Moreover, Japan’s long-term productivity growth from 1954 to present, at 1.0% annually, still surpasses the US rate of 0.8%. This suggests that factors beyond demographics, such as the aftermath of World War II and specific economic circumstances, played a more significant role in shaping Japan’s productivity trajectory. Therefore, extrapolating productivity trends solely based on age demographics is misleading.
More relevant factors influencing productivity include technological advancements, regulatory environment, and corporate incentives for distributing earnings to shareholders. The US has outperformed both Japan and the rest of the world in these areas, as evidenced by the superior performance of the S&P 500 compared to global and Japanese stock indices. The recent stagnation in the S&P 500 in 2025 presents an opportunity for investors who may have been hesitant to enter the market due to concerns about the sustainability of the recovery seen in the preceding years. This pause allows for a strategic re-entry point, potentially capitalizing on undervalued assets.
This market pause also creates an opportune moment to invest in high-quality, stock-focused CEFs like the Gabelli Dividend & Income Trust (GDV), which offers a compelling 6.7% dividend yield and trades at a 13% discount to its net asset value (NAV). GDV has been undervalued for a period, prompting investors to bid up its discount from nearly 18% last year. Despite this upward movement, GDV remains attractively priced compared to the average 6.6% discount for equity CEFs. The fund’s focus on blue-chip US companies like American Express, Mastercard, and JPMorgan Chase further enhances its appeal.
The discount to NAV offers investors an enhanced yield. The yield on GDV’s NAV is 5.9%, lower than the 6.7% yield on the market price but still attractive considering the fund’s long-term performance. This lower NAV yield underscores the potential for price appreciation as the discount narrows. Moreover, GDV’s historical performance, with a 7.4% annualized total NAV return over the past decade, suggests its potential for continued strong performance. Therefore, GDV represents a compelling investment opportunity for income-seeking investors looking to capitalize on market inefficiencies and benefit from a robust portfolio of high-quality US stocks.
The current market dynamics present a unique opportunity for discerning investors. The unfounded fears regarding declining US productivity have created a temporary lull in the market, providing an opportune entry point for those seeking long-term growth and income. Furthermore, the availability of discounted CEFs like GDV offers a compelling combination of high yield, potential for price appreciation, and exposure to a diversified portfolio of established US companies. By understanding the underlying factors driving productivity and identifying undervalued assets, investors can position themselves to benefit from the inherent resilience and growth potential of the US economy. Therefore, rather than succumbing to fear-driven narratives, investors should view the current market environment as a chance to strategically allocate capital and build a portfolio positioned for long-term success.
The key takeaway is that analyzing long-term trends and understanding the nuances of economic data are crucial for making informed investment decisions. While short-term market fluctuations and sensationalized narratives can create uncertainty, focusing on fundamental factors like technological innovation, corporate governance, and market valuations allows investors to identify opportunities that others may overlook. By adopting a contrarian approach and utilizing a thorough understanding of market dynamics, investors can navigate market volatility and achieve their financial goals. In the case of US productivity and its impact on stock market returns, a deeper examination reveals that the concerns are overblown, and opportunities for strategic investment abound.
