Economists and investors in finance centres around the world have been asking this question for decades: How can we tell when an economic recession will end? I am going to show you exactly how.
Knowing anything in advance would be a blessing – from the birth date of your first child to the winning horse at the race track. But imagine if you could see into the future and tell when an economic recession would end? Your business would soar, your job offers would multiply, and you would be ready for it all.
So, how do we tell when an economic recession will end? The answer is extremely simple – and yet it has been proven over many decades of data this last century.
In fact it is so simple your children could research it in the comfort of your own home.
And this is where we look to the stock market for the answer – as Ken Fisher outlined in his book, “The Wall Street Waltz”, the stock market has a magical way of leading the overall economy. Fisher discovered that the stock market will start going up before the end of an economic recession is announced.
Don’t believe it? Let’s look at our most recent example: the 2008 recession. The market started going up in March 2009, and the economic recession was announced over in October 2009 – a lead time of around 5 months. Or perhaps the recession before that – 2001 to 2003. The market started rising in March 2003, and the recession was announced over in July – 4 months later.
But there are many more: markets in 1952 declined before a recession was announced in 1953. The stock market had predicted an economic recession again – and the end was no different.
We can see the same pattern in 1957, 1960, 1967, 1970, 1974, and then in more recent recessions like the early 1990′s and 2002. The average time-frame that the stock market leads the economy by is 6 months. Of course some will be more, and some will be less, but as a general rule 6 months is a good one to go by.
So how can you turn this information into $$? Well, considering we have had at least 3 economic recessions in the last 20 years, you can bet there will be another one in your lifetime. But when the next one hits, you’ll know in advance. And when it is about to end, you’ll be out there getting that job you want or the customers who are coming back to buy!
Dave writes for ASX Market Watch, where he has a free course and research on trading and investing in the stock market.
categories: stock market,investing,trading,finance,wealth,business
