The End of the Recession?

I recently heard someone on CNBC talking about how the market was getting ready to rise, and that the recovery had started. (This was based on the fact that the S&P 500's 50-day moving average was rising above its 200-day moving average.) I listened to this babbling for another 2 minutes or so, then had to turn it off.

We keep hearing that the market is "telling us something" -- usually that the recession's going to end, and that the market looks out about 6 months. This is rubbish.

Riddle me this, Batman: Did the market see the recession in October of 2007? We were already in recession, and the S&P 500 (see below) was making new highs. Where was the market prescience? Did it see the 25% drop in January of this year?

I could go back and cite scores of examples where the market "missed" the future turning points over the past 10 decades.


Click to enlarge.

What about the shibboleth that the market turns up 6 months before the end of a recession? Sometimes that's true. But does it mean anything? The same people who said it meant something in December and January are saying it means something now. But now it's June, and the recovery's not here -- so maybe the market wasn't telling us something in January after all.

Gentle reader, there will be a recovery. And, statistically speaking, it's likely that the markets will have turned up before the actual recovery. But does that mean anything today?

Go back to the chart above. Notice that, in 2003, when the market finally turned up, we were already well out of recession. The market had a very quick 12% or so drop while we were in recovery, and later we went on to a 90% run-up! Was the drop telling us anything?

(I saw some reports that differed, which selected fewer such data points and suggested that market returns were up after such an event. Logically, that can't be. Let's be generous and just assume they were based on sloppy research.)