Studying The Stock Market Trends During Recession

[savio13]

“A recession is possible!” Ben Benrnanke, Federal Reserve Chairman, said this in the first week of April 2008. Now, how does that affect the US Stock Market? The markets are definitely going to plunge southwards. Will this recession will be a shallow one? With the current issues, it looks like a deeper than usual fall in the near future. But, we don’t want to speculate how long the recession will last this time. We want to be on our toes to look for a rebound.

The early 1980’s recession lasted for almost 18 months - from July 1981 to December 1982. The US stocks hit the bottom in August 1981, and the next 5 months saw the S&P 500 climb 35 percent. Interestingly, the recession in 1990-91 saw the markets bottomed in October 1990. At that time, the recession ended in March 1991 and during those few months, the stocks returned 28 percent.

This simply shows that the trend during those recession years showed some familiarity. The rise from bottom was around for 5 to 6 months, and returned between 28 and 35 percent. What shall be the picture this time?

A long recession is not in the interest of the US, nor is it in the interest of the world. The US is expecting changes in the Government this time. If the recession is not reversed in the next 6 months, then we can assume it then to be a longer version this time. Assuming this recession to be a shorter one, like the earlier ones, we should be expecting a similar trend this time too. The market hitting the bottom around October, and then turning upwards for the next 6 months. This is a possibility. It is therefore prudent to watch the downwards trend carefully, especially 6 months hence. There could be a return between 15 to 40 percent if the trend follows the past pattern!

Some experts have already suggested that the markets have already hit the bottom levels this January, and if the recession is a shallow recession this time, then it is a good time to pick growth companies in healthcare, industrials, energy, and technology.

These are assumptions, and one should invest very carefully. But, a study of the history of the trends will display some interesting patterns and may well give directions to investing. The Fed interest rate cuts, the tax stimulus rebates, and the November presidential election might just boost the stock markets around the end of the year.

It is interesting to also read what Chris Orndorff, a portfolio manager in Los Angeles, says that there are always ways to make money, even during the recession. According to him, investors place their faith in the companies with stable earnings. Other analysts say this is the time for such growing and earlier proven companies with good stability to begin their rise now after the stocks took a beating during January 2008, due to the housing, financial, and other issues sank the stock markets. Some expert analysts say that this is the right time to look for a good buy!