Length and Depth of this Recession
While this particular market crash and recession may defy historical standards, we would still argue that it is valuable to look to history as an indicator of the future. In this vane, let’s review some historical recession data as provided by Claymore Securities in a recent paper entitled, “Recessions and the Financial Markets: Putting the Market Cycle into Perspective:”
Source: National Bureau of Economic Research, Inc. (“NBER”) and Bespoke, October 2008. Past performance is not an indication of future results.
Using the historical averages that this data suggests and the NBER definition of when the recession started would suggest that this recession should last into the 1st quarter of 2009. It also would suggest that the DJIA should have reached a bottom around the summer of 2008 when, in fact, it appears that the DJIA may have reached a bottom in November of 2008. If you believe that more recent market recessions may help to provide more direction on future recoveries than older data, as we do, the please look at the section of the chart above pertaining to the last four recessions staring in 1980. Even in the most extreme case, according to the longest recession data provided in this historical research, the recession should end in the 2nd quarter of 2009.
I believe that this particular recession may last through 2009 with GDP growth not returning until the 3rd quarter of 2009 at the earliest. This does not necessarily mean that the markets will not recover before the economy does and those that wait for the latter may miss out on a significant part of the upward correction associated with the former.