Good economy, poor returns?

"Ever since the Federal Reserve started to talk of tapering, the equity market had had a fairly cautious attitude towards economic data. On some days, bad economic news has been good for the market on the grounds that the Fed would be less likely to taper; good news has occasionally provoked a sell-off. Overall, the trend has been upwards, as illustrated by the Dow's ability to top 16,000. Indeed, we could almost say we are back in Goldilocks territory, where the economy is not so strong (as to cause inflation and monetary tightening) or so weak (as to cause recession and a collapse in profits) but "just right".
It seems common-sensical to say that a strong economy should be good news for equities, since profits are linked to GDP, and a weak economy should be bad for the stockmarket (think of the 1930s). But history suggests there is very little correlation between GDP growth and equity returns over the long run (see this paper from Jay Ritter, for example). One reason is that the stockmarket is not an exact representation of the domestic economy (some sectors are in government, or family-run hands; the biggest companies are multinational). And a second reason, oft forgotten, is that the key driver of returns is the starting valuation."