By Keith
The stock market was up big last week. Many investors are thinking we could be done with the pulback and are eager awaiting the bull market to kick into effect again. However, there is a lot of new upper resistance to overcome if the bull market could continue. The market will have to close above last months close to show a sign of strength. Last week pushed us into the positive territory for August, but the true test is if we can hold on to it this week. If we can’t hold strong to the positive gain for the month the market should continue it’s downward slide.
To know more CLICK HERE!!!
Monday, 23 November 2009
Historical Behavior of the Stock Market During Recessions
By Jeff
RecessionA week ago I discussed the large amount of news coverage about whether we’re in a recession. I concluded that a recession should probably not change your investment strategy.
There is a neat interactive tool called “50 years of market swings” at the CNN Money website that supports my conclusion. The tool is essentially a graph showing the relationship between recessions and bear markets over the last 50+ years. Nearly every recession over the last 40 years was preceded by a bear market and was not followed by a bear market.
If you’d like, open up the tool and follow along as you read through the exciting history of recessions in our country.
Three Recessions During 1954-1962
The first three recessions on the chart occurred in the 1954-1962 timeframe during the Dwight D. Eisenhower years. There was no bear market before, during, or after the first recession.
There was a bear market directly before the second recession. The bear market ended early in the recession.
There was no bear market before or during the third recession, but there was a bear market about one year after the recession.
Conclusion: The stock market was not correlated with the recessions. You would not have been able to predict the right time to exit the market based on the timing of the recessions. Getting out of the market during the recessions would have been counterproductive. The market continued to see gains during the recessions.
Two Recessions During 1969-1975
There were two recessions during the Lyndon B. Johnson and Richard M. Nixon years. The second began late in the Nixon administration and carried over into the Gerald R. Ford administration.
In both cases a bear market preceded the recession by a year. In both cases the bear market ended half way through the recession.
To avoid the bear market you would have needed to pull your money out a year before the recession started.
Recall that it takes economists several months to determine that a recession has begun. By the time economists knew these recessions had started, the stock market had already dropped as far as it was going to drop. If you pulled your money out at that point, you would have sold near the bottom of the market.
A better strategy would have been to buy during the second half of the recessions. The midpoint of the recessions seemed to signal the end of the bear market and the beginning of an upward turn.
Three Recessions During 1980-1992
There were two recessions during the late Jimmy Carter and early Ronald Reagan years. There was a recession late in George H.W. Bush’s presidency. Many believe the latter recession was responsible for Bush’s loss to Clinton in the 1992 election.
All three recessions during this time period were like the recessions of the 1969-1975 years. In each case the market had dropped to its lowest point by the time the recession was half over. By the time economists would have confirmed that the recession had begun, the stock market would already be near its low point. Pulling your money out at that point would have been a bad idea.
Recession During 2002
The final recession on the graph occurred during the first term of George W. Bush. This recession is unique. It was accompanied by one of the worst bear markets in the history of the country. The bear market began a year before the recession began, and continued for a year after the recession was over. The recession itself was rather quick compared to the length of the bear market.
Suppose you held on to your portfolio during the first year of the bear market and began to sell when the economists determined the recession had begun. You likely would have sold at a point slightly above the market’s low point, but not by much.
Conclusion
Starting with the 1970’s the recessions have usually signaled the end of bear markets. If you had sold at the time economists declared that a recession had begun, you would have sold at the lowest point in the market.
What Investors Should Do
Assuming that recessions and their accompanying bear markets continue to follow the same pattern that has been established over the last 40 years, selling at the onset of a recession is not a good idea. On the contrary, buying during the last half of a recession seems to be a winning strategy.
Unfortunately there is no way to know when a recession has hit its halfway point. The safest and surest strategy is to avoid drastic changes to your approach and continue to implement a long-term buy and hold strategy. This strategy will succeed even if we are in the middle of a recession.
To know more CLICK HERE!!!
RecessionA week ago I discussed the large amount of news coverage about whether we’re in a recession. I concluded that a recession should probably not change your investment strategy.
There is a neat interactive tool called “50 years of market swings” at the CNN Money website that supports my conclusion. The tool is essentially a graph showing the relationship between recessions and bear markets over the last 50+ years. Nearly every recession over the last 40 years was preceded by a bear market and was not followed by a bear market.
If you’d like, open up the tool and follow along as you read through the exciting history of recessions in our country.
Three Recessions During 1954-1962
The first three recessions on the chart occurred in the 1954-1962 timeframe during the Dwight D. Eisenhower years. There was no bear market before, during, or after the first recession.
There was a bear market directly before the second recession. The bear market ended early in the recession.
There was no bear market before or during the third recession, but there was a bear market about one year after the recession.
Conclusion: The stock market was not correlated with the recessions. You would not have been able to predict the right time to exit the market based on the timing of the recessions. Getting out of the market during the recessions would have been counterproductive. The market continued to see gains during the recessions.
Two Recessions During 1969-1975
There were two recessions during the Lyndon B. Johnson and Richard M. Nixon years. The second began late in the Nixon administration and carried over into the Gerald R. Ford administration.
In both cases a bear market preceded the recession by a year. In both cases the bear market ended half way through the recession.
To avoid the bear market you would have needed to pull your money out a year before the recession started.
Recall that it takes economists several months to determine that a recession has begun. By the time economists knew these recessions had started, the stock market had already dropped as far as it was going to drop. If you pulled your money out at that point, you would have sold near the bottom of the market.
A better strategy would have been to buy during the second half of the recessions. The midpoint of the recessions seemed to signal the end of the bear market and the beginning of an upward turn.
Three Recessions During 1980-1992
There were two recessions during the late Jimmy Carter and early Ronald Reagan years. There was a recession late in George H.W. Bush’s presidency. Many believe the latter recession was responsible for Bush’s loss to Clinton in the 1992 election.
All three recessions during this time period were like the recessions of the 1969-1975 years. In each case the market had dropped to its lowest point by the time the recession was half over. By the time economists would have confirmed that the recession had begun, the stock market would already be near its low point. Pulling your money out at that point would have been a bad idea.
Recession During 2002
The final recession on the graph occurred during the first term of George W. Bush. This recession is unique. It was accompanied by one of the worst bear markets in the history of the country. The bear market began a year before the recession began, and continued for a year after the recession was over. The recession itself was rather quick compared to the length of the bear market.
Suppose you held on to your portfolio during the first year of the bear market and began to sell when the economists determined the recession had begun. You likely would have sold at a point slightly above the market’s low point, but not by much.
Conclusion
Starting with the 1970’s the recessions have usually signaled the end of bear markets. If you had sold at the time economists declared that a recession had begun, you would have sold at the lowest point in the market.
What Investors Should Do
Assuming that recessions and their accompanying bear markets continue to follow the same pattern that has been established over the last 40 years, selling at the onset of a recession is not a good idea. On the contrary, buying during the last half of a recession seems to be a winning strategy.
Unfortunately there is no way to know when a recession has hit its halfway point. The safest and surest strategy is to avoid drastic changes to your approach and continue to implement a long-term buy and hold strategy. This strategy will succeed even if we are in the middle of a recession.
To know more CLICK HERE!!!
2010 Investment Outlook–A woman’s perspective
I spent a lovely Monday afternoon at the downtown offices of Latham & Watkins, the 800 pound gorilla in the Los Angeles attorney space. Befitting a firm of their stature, the tastefully understated decor oozed money and power, and just getting through their doors practically required a state-sealed letter from the governor.
The purpose of my sojourn was to attend the 100 Women in Hedge Funds (abbreviated 100WHF) panel which Latham & Watkins graciously agreed to host. The topic up for discussion was the investment outlook for 2010. Before I proceed any further, the flier for all 100WHF events states that the contents of their events is not for attribution in the interest of member privacy. I completely understand that policy but I don’t think that what I’m about to report will be anything that anyone could consider an invasion of privacy or even remotely controversial. But just to be on the safe side, I won’t attribute quotes to any one panelist in particular. I don’t think this will hurt my coverage as similar sentiments and points of view were echoed among others on the panel.
About a half-dozen questions were posed to a panel composed of high-level women in the areas of portfolio management, manager and investment selection, business relations, and financial law. Following is a summary of the answers to some the questions posed. In the interest of clarity and readability I’ve stripped out the financial jargon–terms like “dispersion,” “capital structure,” and “counter-party risk.” You’re welcome.
Q: In your opinion, is the market improving?
The general consensus is that trading is definitely picking up and fund managers are glad to now have something to do. They’re seeing an increase in liquidity and an overall improvement in the technicals, but they’re concerned about the fundamentals.
The feeling is that the market has gone from significantly undervalued to fair-valued and that from here on out the market will need catalysts such as earnings growth and/or an increase in liquidity to propel it higher. One manager said she is starting to raise cash (good move!) and is also tightening her selection criteria. Others emphasized the need for nimbleness in adjusting portfolios.
Overall, the panel’s approach to the market going into 2010 is one of cautious optimism.
Q: In what areas will you be looking to invest in 2010?
One concern is the threat of inflation, not only in the US but globally. Some hedges against inflation that were cited were the stereotypical inflation hedges–commodities and TIPS (inflation protected Treasuries). More interesting is the use of emerging markets as a hedge. Growth in emerging markets, fueled not only by commodity and infrastructure demand but also by a hugely increasing consumer demand created by an explosion in capital growth, is expected to easily outstrip that of the developed nations.
Not giving specifics, the panel also felt that what worked this year probably will not work next year. Diversification was mentioned as a priority especially away from “momentum factors.” (I’m not sure how to interpret this.)
Q: What are the challenges and risks for 2010?
We all know how the credit crisis crushed the portfolio returns of retail investors. The way hedge fund managers convey the same thing is by saying that they are looking forward to increasing alpha. One way that some aim to do this is by getting the betas right.* (The exact mechanism on how that could be accomplished wasn’t specified and I’m not sure how it could be done considering that beta is not a fixed number.)
Besides inflation being a potential problem, other risks are being examined. Included is political risk, both at home (think health care reform and securities regulation) and internationally (North Korea, Iran, Venezuela, etc.). Riffing off the H1N1 problem, one panelist mentioned that a health pandemic could also be factor into the risk equation.
Q: What’s your opinion of the proposed regulation of the financial industry?
Would you believe me if I said that all of the panelists were in favor of regulation? I didn’t think so. In fact, I think I heard the word “cancer” mentioned, but I’m not sure…
The prevailing thought is that no matter how hard one might try, fraud can never be completely eradicated and that government intervention is an over-reaction to the Madoff-type scandals. Some panelists said that they’ve voluntarily increased their own in-house due-diligence and feel those measures more than adequately address the issue of investor risk.
Q: Do you want to venture any forecasts for the US economy?
Although the crystal ball is cloudy, some on the panel feel that we may have to inflate our way out of our massive debt, a commonly held sentiment in the investment community. Others think that the greenback is losing stature in the international community and could well be replaced by a basket of global currencies.
Only time will tell.
Addendum
I thoroughly enjoyed my experience at the panel discussion and it was thrilling to meet so many intelligent, experienced, and knowledgeable women involved in the Los Angeles financial community. I hope that this article will raise public as well as institutional awareness of the high-caliber women involved with 100 Women in Hedge Funds which has active chapters operating not only in the US but in Europe and the Far East.
To find out more CLICK HERE!!!
Article source:http://stockmarketcookbook.com/blog/?p=1596
The purpose of my sojourn was to attend the 100 Women in Hedge Funds (abbreviated 100WHF) panel which Latham & Watkins graciously agreed to host. The topic up for discussion was the investment outlook for 2010. Before I proceed any further, the flier for all 100WHF events states that the contents of their events is not for attribution in the interest of member privacy. I completely understand that policy but I don’t think that what I’m about to report will be anything that anyone could consider an invasion of privacy or even remotely controversial. But just to be on the safe side, I won’t attribute quotes to any one panelist in particular. I don’t think this will hurt my coverage as similar sentiments and points of view were echoed among others on the panel.
About a half-dozen questions were posed to a panel composed of high-level women in the areas of portfolio management, manager and investment selection, business relations, and financial law. Following is a summary of the answers to some the questions posed. In the interest of clarity and readability I’ve stripped out the financial jargon–terms like “dispersion,” “capital structure,” and “counter-party risk.” You’re welcome.
Q: In your opinion, is the market improving?
The general consensus is that trading is definitely picking up and fund managers are glad to now have something to do. They’re seeing an increase in liquidity and an overall improvement in the technicals, but they’re concerned about the fundamentals.
The feeling is that the market has gone from significantly undervalued to fair-valued and that from here on out the market will need catalysts such as earnings growth and/or an increase in liquidity to propel it higher. One manager said she is starting to raise cash (good move!) and is also tightening her selection criteria. Others emphasized the need for nimbleness in adjusting portfolios.
Overall, the panel’s approach to the market going into 2010 is one of cautious optimism.
Q: In what areas will you be looking to invest in 2010?
One concern is the threat of inflation, not only in the US but globally. Some hedges against inflation that were cited were the stereotypical inflation hedges–commodities and TIPS (inflation protected Treasuries). More interesting is the use of emerging markets as a hedge. Growth in emerging markets, fueled not only by commodity and infrastructure demand but also by a hugely increasing consumer demand created by an explosion in capital growth, is expected to easily outstrip that of the developed nations.
Not giving specifics, the panel also felt that what worked this year probably will not work next year. Diversification was mentioned as a priority especially away from “momentum factors.” (I’m not sure how to interpret this.)
Q: What are the challenges and risks for 2010?
We all know how the credit crisis crushed the portfolio returns of retail investors. The way hedge fund managers convey the same thing is by saying that they are looking forward to increasing alpha. One way that some aim to do this is by getting the betas right.* (The exact mechanism on how that could be accomplished wasn’t specified and I’m not sure how it could be done considering that beta is not a fixed number.)
Besides inflation being a potential problem, other risks are being examined. Included is political risk, both at home (think health care reform and securities regulation) and internationally (North Korea, Iran, Venezuela, etc.). Riffing off the H1N1 problem, one panelist mentioned that a health pandemic could also be factor into the risk equation.
Q: What’s your opinion of the proposed regulation of the financial industry?
Would you believe me if I said that all of the panelists were in favor of regulation? I didn’t think so. In fact, I think I heard the word “cancer” mentioned, but I’m not sure…
The prevailing thought is that no matter how hard one might try, fraud can never be completely eradicated and that government intervention is an over-reaction to the Madoff-type scandals. Some panelists said that they’ve voluntarily increased their own in-house due-diligence and feel those measures more than adequately address the issue of investor risk.
Q: Do you want to venture any forecasts for the US economy?
Although the crystal ball is cloudy, some on the panel feel that we may have to inflate our way out of our massive debt, a commonly held sentiment in the investment community. Others think that the greenback is losing stature in the international community and could well be replaced by a basket of global currencies.
Only time will tell.
Addendum
I thoroughly enjoyed my experience at the panel discussion and it was thrilling to meet so many intelligent, experienced, and knowledgeable women involved in the Los Angeles financial community. I hope that this article will raise public as well as institutional awareness of the high-caliber women involved with 100 Women in Hedge Funds which has active chapters operating not only in the US but in Europe and the Far East.
To find out more CLICK HERE!!!
Article source:http://stockmarketcookbook.com/blog/?p=1596
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