I ask this because here in NE, the recession is getting worse-we are seeing companies fail left and right. However, most of the post WWII recessions have been 12-16 months in duration, so if this one is average (and it statrted in the 1st quater of 2001), we should be seeing an upturn soon. My question: how does the stock market typically move as the economy recovers from recession-does it lag the recovery?-and by how many months? Is this a good time to start investingin common stocks?
The stock market tends to be a leading indicator–it tends to go up about two quarters before the recovery kicks in. And lo and behold, the stock market has been going up since it took its big post-Sept. 11 hit. It’s not exactly surging, but it’s trending up.
So yes, under normal circumstances people would expect to see a recovery in the New Year. Of course, circumstances are anything but normal, which adds an extra layer of uncertainty to the problem.
Yeah, keep an eye on things. They would like the war to be completed by the time of the holy year holidays start for them there, strange, it’s also about the same time as ours.
I expect interest rates to drop some more.
I also expect another major attack on the U.S., which will shock the stock market again. So I wouldn’t count on the end being in sight just yet.
End of recession, rehiring workers, and stock market recovery are not necessarily the same thing.
All of the interest rate cuts undertaken by the fed should start positively impacting the economy any time. Usually there is a IIRC 6-18 month lag. Tax rebates should add a small boost as well. also, we haven’t seen a follow up attack in the US or Europe to 9/11 (assuming the anthrax is unrelated). Additional rate cuts from this level are unlikely to have any significant effect.
The stock market is being driven by two opposite factors. 1) Those who think that 2% interest on savings is paltry and are willing to invest in the market. 2) Those who say by any standard fundamental yardstick of value, the stock market is about 50% over valued from where it traditionally bottoms during times of stress. In other words the bulls and bears are fighting it out. IMHO, the market will probably rise until early 2002, and then when quarterly earnings continue to decline the market will fall significantly. The OP has to ask if they believe in liquidity or value?
Stock markets are leading indicators, but only that, indicators. Markets do usually lead about 6 months ahead of a recovery, but have been proved wrong wrong enough to want to take the current rally with a very healthy dose of salt.
Yep, it’s a leading indicator, but not the way you think. Massive layoffs? The Dow goes up. Economic disaster requiring a cut in the prime? The Dow goes up. The Dow is not a good index of how the economy is going. It is merely an indication of how the Rich Folk are doing. There is an old saying in the Economics world, “the thin starve before the fat lose weight.”
This recession is going to be deep and hard, and we are not nearly at the bottom yet. As Hunter S. Thompson recently put it, “The coming decade is going to make the '90s look like a party for spoiled rich kids.”
Lower interest rates are not going to make people buy more things. If they aren’t inclined to buy it they won’t buy it anyway. If you don’t need it, cheaper won’t make you buy it.
Greenspan is not a bailout leader for the stock market.
All the economists I’ve heard are saying that the recession is only just beginning. Even though alot more people own stock than in the past, the stock market is still mostly a measure of how rich people feel about our economy. When you’re a CEO with ten million dollars in the bank, 5000 working-class peole losing their jobs is not a significant source of stress :mad:
Handy: But that’s not the primary effect of interest rate reductions. Lower interest rates also lower debt-servicing costs for companies and individuals, which frees up more capital for spending or investment.
Low interest rates also stimulate things like mortgage refinancing, which again tends to free up more capital. And over the medium term, it drives down interest rates on credit cards, which really eases the debt burden of poorer people who typically carry balances. The average credit card interest rate has dropped from 17.5% to 14.5% in the last six months, and that’s a pretty substantial savings for many people.
You’re right that some of the other major effects may not materialize. Specifically, new home construction. In regular times, lower interest rates cause a dramatic rise in new home construction, but I don’t think that’s happening this time around.
My big worry is how the market will react if the fed loses its ability to lower interest rates farther. Because right now, part of the confidence in the market is that if things get worse the Fed will ease rates more. But they can’t go much farther, since the Fed’s rate now is something like 2.5%. What happens when the market decides that the Fed has become powerless to lower rates further?
I’m sure we’ll have to chase this thread to IMHO, but Chas.E said it first—we’re not nearly at the bottom yet.
If 9/11 had never happened, the stock market today would have been lower than it was on that day, by more than 5-10, IMHO.
I can remember the excesses of the inflationary 1978-81 period. For you youngin’s, you could get 16% on a CD. Anyone in their right mind knew that the deflation that would have to follow would be dramatic. But there were still people who thought that you would never see single-digit mortgages again. So much for those pundits.
The US is paying for the excesses of the 90’s. But deflation is hard to stop/turn around when it gets going. It ain’t over.
As for interest rate increases/decreases, they take up to 18 months to totally filter into the economy. So the decreases we have experienced so far this year will continue to rock the economy for the next * year and a half*.