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The stock market is a forward discounting mechanism so it usually bottoms much earlier than the economy. While the historic average length of recessions is about 15 months, the stock market has, on average, bottomed after only 6 months:
But notice how stock prices fall well before a recession officially starts. It isn’t that stock market troughs last less than recessions, but that they are shifted back in time.
As the chart shows, in recent times, the S&P 500 has not been as sprightly as before. Whereas before it would find its feet 6 months after the start of a recession, from 2000 to 2004 it took up to 24 months. That is a huge difference. And only time will tell if it was simply an outlier or significant shift.
If anything, this chart further reinforces the epic proportions of this current downturn. As I mentioned in the Weinstein stage analysis of the market, my expectation is for the market to weaken but to maintain its previous swing low. Then with some more backing and filling to allow the long term moving average to slow down and flatten, setting the stage for a lasting low.
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