A FEW weeks ago, the big debate on Wall Street was whether or not the economy was headed for a recession. Today, for many investors, the question isn’t whether a recession is coming, but when. In fact, some are wondering whether one has already begun.
Does the timing of a recession really matter? If you’re an equity investor, it does.
No matter how aggressively the Federal Reserve lowers interest rates, the economy may be headed for a severe downturn. The stock market, at least, seems to support this argument. Just three weeks into the new year, the Standard & Poor’s 500-stock index is down nearly 10 percent. And since the market peaked Oct. 9, stocks have lost more than 15 percent of their value.
So, the thinking goes, the sooner an official recession is declared, the sooner the economy can start to work its way out of it. “If we are in fact in recession, we may be close to fleshing out a bottom here in stock prices,” said Duncan W. Richardson, chief equity investment officer at Eaton Vance, the asset management firm in Boston.
Remember that the stock market & the economy, though related, are not the same thing.
Wilfred,
Very true. Unfortunately, the average member of the public seems to think that the stock market should always go up. It does not. Corrections happen; after all, no company or industry always makes money.
I think the most important point of this article is that public sentiment may cause a recession or make it worse. Just remember, folks, if you are invested in the stock market, you only lock in your losses if you sell. Asset allocation, dollar cost averaging, and investing over time are the way to go. Don’t be lured by promises of continually high returns (any more than you should have been lured by real estate agents telling you to “flip” your house and buy up, up up!).