Economic recovery lead by stock market?

von Neumann

Simple question: has there ever been an economic recovery which was not lead by the stock market?

For some reason I have a gap of 6 months between stock market bottoming and economic bottoming in my head.

That and the average US recession last 11 months .

I am just wondering as the ISEQ appear to be continuing it's decent.

silverharp

Whats average about whats going on now?

von Neumann

I suppose what I really asking is it fair to say we're at least 6 months away from the up turn.
Basing this on previous recession and the relationship between economies and their stock markets.

Sometimes I wonder if we getting caught up in the sensationalism of it all.

silverharp

von Neumann wrote: »

I suppose what I really asking is it fair to say we're at least 6 months away from the up turn.
Basing this on previous recession and the relationship between economies and their stock markets.

Sometimes I wonder if we getting caught up in the sensationalism of it all.

if this is like the 1930's then it took 3 year for the stock market to reach a bottom, 73/74 was 2 solid years of decline. I'd conclude the stock market would not hit a bottom until at least the end of this year, then using your 6 mth, you would be talking mid 2010 before we see the "Green Shoots" of recovery. Wake me up when its over:pac:

Time Magazine

Are you confusing "led" with "preceded"? I'm not being condescending here, there's a serious question of which leads which and it's entirely possible that the markets see an economic recovery on the horizon and adapt expectations accordingly, thus the question.

silverharp

The Economist wrote: »

it's entirely possible that the markets see an economic recovery on the horizon and adapt expectations accordingly, thus the question.

Thats the way I see it, markets dont go up and down in a vacuum. That the markets find a bottom ahead of the real economy just shows how sensitive they are to sniffing out or pricing in that the worst is over
In the current situation if people start buying now they are expecting a recovery later in the year, which I would say is early.

Don't forget though, that there is a lag in the major macro variables and there is measurement error whereas financial markets move instantaneously. Thus, you often find that a country is in a recession for a bit before an official announcement is made and the same holds for recovery.

Interestingly, Sarno has a paper out (can't recall the ref off hand) which models exchange rate as a number of regimes (3 I think, haven't read it yet). I don't know of a paper which does the same for equity markets but I would guess the same concept holds.

silverharp

Deleted User wrote: »

Don't forget though, that there is a lag in the major macro variables and there is measurement error whereas financial markets move instantaneously. Thus, you often find that a country is in a recession for a bit before an official announcement is made and the same holds for recovery.

Here is an example, Unemployment in the US during the 1930's which topped in 1933 but the market bottomed in july 1932.

1929 - 3.2 percent
1930 - 8.7 percent
1931 - 15.9 percent
1932 - 23.6 percent
1933 - 24.9 percent (the highest during the Great Depression)
1934 - 21.7 percent
1935 - 20.1 percent
1936 - 16.9 percent
1937 - 14.3 percent
1938 - 19.0 percent