Keep Your Eyes On The Bad Economic News
Big declines in the stock market are associated with recessions, and stocks often bottom months before recession-end.
No one knows exactly how long the downturn in the economy will last or precisely how much the economy will shrink – or even if it will shrink. However, one thing we do know is that recessions come and recessions go. And, when they go, the stock market has always headed higher.
The stock market, as measured by the Standard & Poor’s index, usually bottomed well in advance of the end of the 10 recessions that occurred in the past 54 years, also known as the modern era of American financial history.
It is counterintuitive: When the economic news is worst, the stock market is very likely bottoming. When the news is worst, the stock market has very likely started a new bull run. It’s a fake-out. It’s why no one can reliably predict the market: You have to reenter the market when the news is terrible.
The stock market’s pattern of bottoming a few months before a recovery should be kept in mind this week, in case inflation worsened last month, which will be known when the Consumer Price Index for October is released at 8:30 a.m. ET, Thursday, November 10.
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