Oct 21, 2008 @ 03:39 pm
NEW YORK - The stock market is not the economy.
The market's painful slide downward may be ending. The economy's suffering has a long way to go.
How do we know that? Washington is telling us. It's saying the economy is still in serious trouble and opening the possibility of another government-funded stimulus package.
"With the economy likely to be weak for several quarters, and with some risk of a protracted slowdown, consideration of a fiscal package by the Congress at this juncture seems appropriate," Federal Reserve Chairman Ben Bernanke told Congress on Monday.
The financial world has been buzzing over whether the all-out panic that fueled the recent stock rout could really be over.
On October 10, the Dow Jones industrial average plunged to a close of 8,451.19--its lowest in 5 1/2 years. Then it spent most of last week seesawing, but finished with its best weekly performance in five years.
Investors are feeling like we might have reached a turning point. They point to improving credit conditions. The London interbank offered rate, or Libor, has retreated from recent highs, which means lower interest rates on consumer loans like adjustable-rate mortgages.
There is also evidence that the market had faced extreme conditions that couldn't last. For instance, a closely watched "fear gauge"--the Chicago Board Options Exchange Volatility Index, which is known as the VIX--topped a record high of 80 last week, well above its typical level that runs closer to 50.
None of this means the economy is poised to begin healing, though. Historically, the stock market has turned a corner months before recessions end.
In the 21 recessions from the start of the 20th century, the average economic decline lasted 14.4 months and the Dow industrials tended to bottom out just over 8 months into that, according to Bespoke Investment Group.
- Comments
Post Your Comment
