All good and bad things come to an end. This financial crisis will as well. So to track the progress we have to first define the beginning. My metric is the last high of the market as defined by the S&P 500.  So the bear market began October 9, 2007 closing at 1565. A bear market is commonly defined as a 20 percent decline in the index. This is the 7th bear market of the past 40 years and by measure of decline the only S&P 500 drop to exceed 50%.  The lowest point was 741 on November 21, 2008, a 52% decline. Today we are down 47% from the 2007 high. Stock prices are immediate measures and are often referred to as leading indicators or predictors of where the economy might be going.

This bear market began as a financial problem and is now a full blown world wide recession. A recession is 2 consecutive quarters of negative real GDP. Recessions are backward looking measures as it takes time to collect the data.  This predictive ability comes with a degree of error as many more recessions have been predicted by the market than have come to pass.

The U.S. recession officially began in December 2007. The  National Bureau of Economic Research publishes some good data on past recessions. Peak to trough since the Second World War, the average recession has lasted 10 months. The range is large however: the longest peak to trough was experienced through the U.S. Civil War at 65 months. In the 1930s the duration was 43 months.  Unfortunately, there isn’t enough computing power in the world to confidently predict the end of a recession. The economy is simply too complex.

I think the stock markets will rebound. Optimism has always won in the end. The S&P 500 first hit 100 in 1968. Today, we worry as the Index has fallen below 900. This isn’t gravity, it’s a measure of growth in the economy. The economy is larger, the population has grown, companies make  more money, and these fundamentals are eventually reflected in the value of the index.

In future posts I will continue to review the evidence to try to determine when the uphill swing begins. Stay tuned…