When will the Stock Market Recover?

[haha]

When will it recover may not be the best question-perhaps a better one is has it bottomed, and if not when will it bottom, and at what level?

Note- P/PE is price to peak earnings ratio.

This is from an article by Wm. Hester, at Hussman Funds.

Hussman Funds - The Beginning of the Middle

 

[CitricAcid]

The beatings will continue unless morals improve...

Morals or Morales or Morale (is Morales a word or a latino name?)

By the way, said second half 2009... but don't really know what "recover" means.

 

[Marquette]

but don't really know what "recover" means.

Stock market rises enough to stop the media from complaining about all of the doom and gloom.

 

[ladelfina]

I didn't vote. "Never" is too long a time.. but I have a feeling it will be 10 years or even longer before the downward trend reverses.. there's too much financial crap to be shaken out, still, and we will need to see major changes in energy use and resource distribution and retooling for domestic mfr. before anything like 'growth' can resume again.

I'm curious to know where people who voted in the 2-3 year timeframe think growth is going to come from.. Jeff, having a "true long term outlook" means not expecting only short-lived downturns or stagnant periods; the poll accepts only the two extremes.

 

[Dawg52]

I didn't vote. "Never" is too long a time.. but I have a feeling it will be 10 years or even longer before the downward trend reverses..

So your 100% cash?

 

[ladelfina]

No. If I were all cash I would have voted "Never".
I did double that position, but I also plan to live longer than 10-20 more years.
If I knew for a fact I had no more than 20 years to live I would be all cash tomorrow.

I probably shouldn't have said 10 years of a downward trend.. maybe some decline and lotsa stagnation is more likely. We'll see.

Anyway, I don't see anyone falling over themselves here to outline any future growth engines or areas. I've raised that question more than once... I'm all ears.

 

[jclarksnakes]

ladelfina,
.....I did not vote in the poll because like you I saw extremes that did not fit my outlook. My long term view is simply that over the long term the market is going to go up and down but that the overall trend will be upward. If I had had the same long term outlook at anytime over the last century I would have been proven 100% accurate.
Jeff

 

[Dawg52]

No. If I were all cash I would have voted "Never".

Well if I didn't think the stock market would do anything over the next 10 years, I would be all cash. Why have stocks if your that pessimistic? As far as the future is concerned, I have no idea. That's why I have a 50/50 split. To hedge my bets.

 

[haha]

I was intrigued by the chart above from Hussman. I compared Shiller's PE10 look to this concept of P/PeakEarnings. The current Shiller PE10 level is about 21, much lower than the 40 or so in 2000. (These all reference S&P 500 prices and earnings.)

However, we are not far below the peak of 1966 around 24, that ushered in a long lasting stagflation bear market in the 70s and early to mid 80s. The 1974 low was below 10, and though it bounced around after that it frequently went back below 10. Then the early and mid 80s saw prices move up slowly and earnings increase more rapidly, such that PE10 spent much of the early and mid 80s below 10. The next recession in 1990 hit RE hard, but PE10 only declined to 15 that fall. Then the 2002 bear bottomed above today's level of 21.

So if you feel that '02 was pretty bad, today should be a safe entry level, and we are right to ask "When will it recover?" If you think on the other hand that events could take PE10 back toward those earlier levels, we haven't seen anything yet! Drops of 1/3 to 1/2 are possible, or very long periods of stagnation while earnings try to catch up to valuations.

I think if interest rates can be kept on the floor, we are relatively safe. But that is a big if. And should it turn out the other way, this could be a very high risk entry, at least for stocks as whole. It does seem to me that recent bear markets have been more along the lines of sector rotations rather than across the board crashes. However I can't see why this would have to continue to be true.

Tricky business!

Ha