The decline in the market began, just when the NBER later claimed the recession had begun - July 1990. The market bottomed in September and October, falling from 369 points to 295 points. 295 is 79.9% of 369. The market went sideways for the year before the decline.
Now after going sideways for a year the market began to decline in October and bottomed so far in January:
The decline is from 1576 to 1270. 1270 is 80.6% of 1576.
I am not using this example to say that the market has bottomed, just that if this is a regular recession the market could have already bottomed. There are lots of doomsday scenarios for the stockmarket out there from the likes of Robert Prechter or Glenn Neely. Those guys could be right but given that valuations are not extreme as they were in 2000 and interest rates very low a much smaller correction of this sort is entirely possible (I'd say likely, but let's wait and see).
Why go back to the 1990 recession rather than 2001? Any recession signal in 2001 was embedded in the bursting of the NASDAQ bubble. I don't believe that the complete decline was due to the upcoming recession, but rather due to the extreme bubble valuations reached in 2000.
It will be interesting if the NBER will eventually decide that the recession started in October.
2 comments:
Sorry, bottom's not in. The fundamentals of today are FAR worse than either of those and the stock market has much farther to fall. Valuation based on past or forecast earnings will not hold up. As earning fall, valuations will rise without the market going down. Markets don't fall to the mean, they fall below the mean, thus making it a mean. Good luck to all. Got cash?
It's interesting to see how all the commenters on this post are so bearish:
http://www.tickerforum.org/cgi-ticker/akcs-www?post=26035
Gulf War is a good point.
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