You Think the Stock Market Has Hit Bottom? Think Again

[The recent jump in stock prices] looks like a bear market rally, similar to that in 1929-1930, with an additional 30% to 40% drop in stocks to come as the deep global recession stretches into 2021. In contrast, many look for a V-shaped economic rebound with a sharp recovery starting in the second half of 2020. A Bloomberg survey of economists foresees the economy contracting 3.7% this year before expanding 3.8% in 2021, far above the 2.3% growth rate in the previous expansion.

But bear markets that accompany recessions last about 11 months, far longer than the recent slump. According to Bank of America analysts, the U.S. stock market has never reached its bottom in less than six months after falling more than 30% in the face of a recession. . .

This pandemic is likely to be the most disruptive financial and social event since World War II with equally long-lasting consequences. Many will no doubt restrain spending in future years to rebuild savings, especially since the crisis caught them at a time of high debts and short financial reserves. A Fed study found that 40% don’t have enough cash on hand to cover an unexpected $400 expense. Also, the $600 extra unemployment checks on top of state unemployment benefits may induce some never to return to work, especially since those payments will probably be continued into 2021. The labor participation rate for working-age men has been falling steadily since World War II and from the late 1990s for women. (Read more from “You Think the Stock Market Has Hit Bottom? Think Again” HERE)

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