Chart of the Day
Someone sent me this chart, which I thought was fairly interesting. It shows the stock performance during recessions dating all the way back to 1926.The most interesting stat is the one that shows how much the market bounces from its low to the end of the recession. That means, that on average, the stock market bounces +25% before the recession is even over.
The hard part, of course, is figuring out both when that low in the market is, as well as how long the recession will last.
I think the declines over the last year have discounted a ton of economic weakness already. Moreover, the historic amount of stimulus that has been thrown at the markets and the economy will, in my opinion, achieve their desired effect.
I just think that most people are not willing to give these programs the appropriate amount of time to kick in and work. Heck, I like instant gratification as much as the next guy, but these programs always work with a lag time, not immediately. For this reason, I think that 2009 will be a much different year in the stock market than 2008.
posted by J. Kahn @ 4:46 PM
2 comments
2 Comments:
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The chart helps a bit by attempting to put all the doom and gloom in some perspective.
The problem I see with it is the definition of recession which determines its starting and ending points. The S&P500 took two years to go from peak to bottom from ('00 to '02) and 5 years to recover to its former peak level. That means it took 7 years to recover peak investment profit. As an investor, it isn't too helpful for the government to tell me the recession was only 8 months long.
Another issue is that people are saying that the current crisis is significantly different from previous ones.
First the banking system itself is a major cause - actually it's Congress' fault for using the banks to implement social welfare, and then refusing to regulate what the financial community did to multiply risk levels.
Furthermore I think it has been a lack of emphasis in US media that many nations that used to be more dependent economic entities are now major players in the world economy, and have a strong sense of independence that may yet come to play in this scenario in ways we have never seen before.
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