Recession Question

October 29, 2008 6:47 AM

Are market indexes usually at their historical low before a "declared" recession (or when the indicators are there even if not officially declared), do those market indexes tend to continue rising or falling afterward, by how much and usually for how long?
posted by CollectiveMind to Work & Money (4 answers total)

indicies tend to be forward looking, so trough before the economy does, but you can't really generalize beyond that.
posted by JPD at 6:53 AM on October 29, 2008

According to this article, historically there is a large drop before a recession, losses at the start of a recession, and gains toward the end of a recession. The end result is that the average market return during the recession itself is close to even (a loss of around 0.4%).

Knowing this is not terribly helpful though, because the onset and length of recessions are largely unpredictable. By the time anyone knows for sure that a recession has started, the market has dropped significantly, and by the time anyone knows for sure that a recession has ended, the market has gained significantly.
posted by burnmp3s at 7:52 AM on October 29, 2008

There's a chart here that will help.
posted by euphorb at 8:32 AM on October 29, 2008

First, a recession isn't "declared". It is an economic condition that has a strict definition- two straight quarters of negative GDP growth. It either happens, or it doesn't.

Second, the stock market has very little to do with "the economy". All the stock market is, is the sum of what buyers and sellers of stocks think those stocks are worth, and what they will be worth in the future. It is too huge to believe that any trends are indicative of anything. Remember, if people are selling, other people are buying. So it balances out.
posted by gjc at 4:14 PM on October 29, 2008