Tuesday, January 08, 2008

Tough call.

The economy is clearly slowing, and the market is getting fearful, but, as this note points out, it's a crap shoot whether this is medium term negative or positive for the market. Basically, it depends on how long and hard this slump is, which is tough to predict in advance.

The beginning of this year does not look like fun though. The stuff that's been working? Health care, consumer staples. Think ESRX, CL, MO.

NY Times: Bad Start, Recession Near?


The maven of S.&P. numbers, Howard Silverblatt, points out that today ranks No. 6 among the worst first days of a year for the S.&P. 500. The index fell by 1.4 percent.

Every one of the previous five came when the economy was in a recession, or not far from one.

Here’s the list:

1. 1932, down 3.7% on the first day. Thus began the last year of the worst part of the Great Depression. The National Bureau of Economic Research thinks the recession that began in August 1929 lasted until March 1933.
2. 2001, down 2.8%. A recession began in March.
3. 1980, down 2.0%. A recession began that month.
4. 1949, down 1.6%. A recession had begun in November 1948.
5. 1983, down 1.6%. A recession had ended in November 1982.

Now even if you make the leap that this somehow forecasts the economy, it doesn’t do much for the stock market investor. The stock market had great years in 1980 and 1983, and a good year in 1949. On the other hand, getting out at the beginning of 1932 or 2001 turned out to be a wise decision.