There’s a lot of talk now about an impending recession. Some say we’re already in a recession. The general conclusion is that if the economy is slowing down then stocks are doomed.
That isn’t necessarily the case. We’re trying to get through the sub-prime crisis, which affects a small part of the mortgage market, which represents about 5% of the economy. It has had bigger repercussions in the credit market, but so have other financial crises in the past and we’ve come through all of them.
In fact, during the savings and loan crisis of 1990, stocks began rising five months before the economy bottomed out. Stocks bottomed at about halfway through the Federal Reserve’s interest rate cutting campaign. Interestingly, that’s about where we are now by most forecasts.
Stocks will be fine once we get through this volatility. People taking advantage of current bargains will be rewarded before too long.
