It’s that time of year again, and the blizzard of articles providing outlooks for 2009 is already so thick it’s hard too see. I just finished reading one in this week’s Barron’s. What do you want to believe? We’re in for a long, cold winter? Or spring is coming sooner than you think? As usual, you can find a respected economist or investment guru who will give you good reasons to support whatever you want to believe.
The “consensus” seems to be that the economic news will continue to be tough through much of 2009. Stock markets, however, are forward looking and typically recover about 6 months before the end of the recession. So, markets could rebound sometime in the spring.
As the Barron’s article states:
Wall Street’s top strategists believe — or hope — that the U.S. stock market has already absorbed the worst of the selling pressure this year, and will start to recover in 2009.
Wow, that’s really going out on a limb. :-) Why the optimism?
For a start, the strategists hope that a stock market that has already fallen 52% from its 2007 peak to its Nov. 20 low has discounted much of the deterioration still to come. With more than 37% of mutual-fund assets recently parked in money-market funds, the highest level since 1991, there’s ample cash for bargain hunting should stocks dip below a certain threshold. Hopes run high that cheaper energy costs will support consumer spending, and — most important — that the deep freeze in the credit markets triggered by Lehman Brothers’ collapse will continue to thaw. And everyone is counting on the government’s aggressive policies to help stop the rot.
Let’s just remember what the consensus outlook for 2008 was in December of 2007: the cooling housing market would slow the economy but we would narrowly miss a recession and see a robust recovery in the second half of 2008.
Whoops. So much for the experts. To be fair, there were some forecasters who called it right. They forecast a devastating recession that would last much longer than average. The current consensus among these commentators is that the outlook remains grim and without careful policy from the Obama administration things could get worse before they get better.