Posted on 10/12/2009 12:56:17 PM PDT by blam
The Stock Market Isn't A Leading Indicator
Mike Mish Shedlock
Oct 12, 2009 3:20 pm
When it comes to recessions, the stock market is only good for hindsight.
Inquiring minds are wondering if the stock market is a leading indicator. Consider the following charts:
S&P Monthly Chart 1980-1992
Vertical bars on the chart show when recessions began. There were three recession in this period -- starting January 1980, July 1981, and July 1990 -- according to National Bureau of Economic Research (NBER) Business Cycle Expansions and Contractions data. The NBER is the official determinant of recessions.
Looking at a chart of the S&P 500, it's difficult to suggest the stock market is a leading indicator, coincident perhaps but certainly not leading.
Moreover, the biggest decline during the period was a 35.9% drop in 1987, a period in which there was no recession. Furthermore, I circled four areas with very similar patterns in the 1980-92 time frame that were recessions following essentially sideways corrections in the S&P. Two of them were recessions, two were not.
[snip]
The stock market is more of an indicator on where the conventional wisdom thinks the economy is going. Conventional wisdom is often wrong.
Is it really ‘leading’ when nobody’s following??
My indicator is the amount of FOR RENT signs in the apartment building corridor in Hollywood. Lots of em’...
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