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Strategies & Market Trends : MARKET INDEX TECHNICAL ANALYSIS - MITA -- Ignore unavailable to you. Want to Upgrade?

To: Killswitch who wrote (14947)	11/3/2002 5:01:31 PM
From: Killswitch	Read Replies (1) \| Respond to of 19219

A recession retrospective Currently we stand at perhaps a 30% chance of sliding into a recession in the next few months. Depending on how the consumer spends, November could be the beginning of one. On the other hand we may skirt around a recession if the consumer hangs tough and eke out 1% or slightly better GDP growth this quarter. At any rate, I wanted to know how the market would be expected to perform if a recession does begin shortly, so I went back just now and took a look at 1990. By many accounts the recession then started as early as July, actually even before Iraq invaded Kuwait. In May-July of that year the markets were fairly strong, with the Nasdaq for instance logging almost a 15% gain. Consumer confidence had already been slipping, but the market was ignoring it. Sound familiar? Then... the markets fell off a cliff, plunging over the course of just two months to hit almost their lowest point of the recessionary period, or roughly 6 months in advance of the end of the recession in March 1991. The Naz went from around 465 in July 1990 down to about 325 in October, for a loss of about 30%. A similar move from where it is at now would put it down to around 950. While it was already dropping before the Iraq invasion of Kuwait, that event certainly helped accelerate and sustain the decline. There are similar possibilities in our current times, for instance if a UN resolution on Iraq cannot be made, or if one is made that Iraq rejects. So the relevant conclusions seem to be: the market can seem to ignore an oncoming recession until it becomes "confirmed", and once the recession looks confirmed the market can tank hard as it prices it in. Also, the market tends to bottom out rather soon in the recession as it tries to anticipate the recovery 6 months out. So continue watching the data to see if it worsens. My impression is that we are teetering rather precariously here upon a creaky structure made out of pure hope. Any further weakness in the economy may begin to crush this structure down in a rather swift fashion. Finally, one bit of info I ran across is that retail spending ex-autos in the 1990 recession actually did not decline. So auto spending may be more important to watch than Wal-mart's sales. Conversely, any drop in Wal-mart's sales may be a rather extreme sign of consumer weakness, potentially signaling a worse recession than 1990.