Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
An Update on the End of College… and a New Way to Profit - 16th Sep 21
What Kind of Support and Services Can Your Accountant Provide? Your Main Questions Answered - 16th Sep 21
Consistent performance makes waste a good place to buy stocks - 16th Sep 21
Dow Stock Market Trend Forecasting Neural Nets Pattern Recognition - 15th Sep 21
Eurozone Impact on Gold: The ECB and the Phantom Taper - 15th Sep 21
Fed To Taper into Weakening Economy - 15th Sep 21
Gold Miners: Last of the Summer Wine - 15th Sep 21
How does product development affect a company’s market value? - 15th Sep 21
Types of Investment Property to Become Familiar with - 15th Sep 21
Is This the "Kiss of Death" for the Stocks Bull Market? - 14th Sep 21
Where Are the Stock Market Fireworks? - 14th Sep 21
Play-To-Earn Cryptocurrency Games Gain More and Is Set to Expand - 14th Sep 21
The CashFX TAP Platform - Catering to Bull Investors and Bear Investors Alike - 14th Sep 21
Why every serious investor should be focused on blockchain technology - 13th Sep 21
SPX Base Projection Reached – End of the Line? - 13th Sep 21
There are diverse ways to finance the purchase of a car - 13th Sep 21
6 Tips For Wise Investment - 13th Sep 21 - Mark_Adan
Gold Price Back Below $1,800! - 10th Sep 21
The Inflation/Deflation debate wears on… - 10th Sep 21
Silver Price seen tracking Copper prices higher - 10th Sep 21
The Pitfalls of Not Using a Solicitor for Your Divorce - 10th Sep 21
Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
This Boom-Bust Cycle in US Home Ownership Should Give Home Shoppers Pause - 9th Sep 21
Stock Market September Smackdown Coming Next? - 9th Sep 21 - Monica_Kingsley
Crazy Crypto Markets How to Buy Bitcoin, Litecoin for Half Market Price and Sell for TRIPLE! - 8th Sep 21
Sun Sea and Sand UK Holidays 2021, Scarborough in VR 180 3D! - 8th Sep 21
Bitcoin BTC Price Detailed Trend Forecast Into End 2021 - 8th Sep 21
Hyper Growth Stocks - This billionaire is now using one of our top strategies - 8th Sep 21
6 common trading mistakes to avoid at all costs - 8th Sep 21
US Dollar Upswing, S&P 500 and Nasdaq Outlook - 7th Sep 21
Dovish Assassins of the USD Index - 7th Sep 21
Weak August Payrolls: Why We Should Care - 7th Sep 21
A Mixed Stock Market - Still - 6th Sep 21
Energy Metals Build Momentum; Silver & Platinum May Follow - 6th Sep 21
What‘s Not to Love About Crypto Market Fireworks - 6th Sep 21
Surging US Home Prices and Gold – What’s the Link? - 6th Sep 21
S&P 500 Rallies To New All-Time Highs – Are The Markets About To Break Higher? - 5th Sep 21
Bond Conundrum - Boom or Bust for Gold? - 5th Sep 21
How the sale of a Sting CD sparked an Entire Online Industry - 5th Sep 21
Three Years of Fresh Thinking With Scott Dylan and Dave Antrobus - 5th Sep 21
Bitcoin Bear Market Trend Forecast 2021 and Model Crypto Portfolio Buying Levels - 4th Sep 21
The Most Actively Traded Companies on the Toronto Stock Exchange - 4th Sep 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Stock Market Post Crash Peak Price Recovery Time

Stock-Markets / Stock Markets 2010 Mar 06, 2010 - 02:30 PM GMT

By: Richard_Shaw

Stock-Markets

Best Financial Markets Analysis ArticleRecovery time is a basic concept that we all understand in terms of being out of breath with a rapid pulse after a hard run (for the young), or a trip upstairs for some of us with a few more years of age.  The greater the severity of the physical stress and the more prolonged the depletion of short-term reserves, the longer the required recovery time. The better condition we are going into hard work, the shorter our recovery time.  Perhaps there a similar kinds of effects in the stock markets.


After a hard crash, it takes some time to recover.  The more prolonged the initial crash, the more time it may take to recover.  Recovery is a matter of both the economy and companies rebuilding strength, and of the investing community rebuilding faith and perhaps cash reserves.  Recovery is also a matter of the financial condition of the economy and companies, and stock valuation levels, prior to a crash.

How hard was the stress on the down side?  How prolonged was the stress?  What kind of shape was the economy in and the market valuation in before the stress?  What may that imply about required recovery time?

Those are important questions for you to ponder.

In any event, let’s consider some significant down markets and the approximate time it took for the market to retake the price of the prior peak.

  • 1968 peak:  3+ years to recovery
  • 1973 peak: 7+ years to recovery
  • 1980 peak: 2 years to recovery
  • 1987 peak: 2 years to recovery
  • 2000 peak: 7 years to recovery
  • 2007 peak:  ??? (2+ years so far — 3 years in October).

We have often heard analysts comparing the decline after 2007 to the decline after 1973, which took seven years to recovery.   The 2000 crash also took seven years to recovery, but the entire world was not in such hot water as it is today.

The 2007 crash was every bit as hard as the 1973 and 2000 crashes, so maybe it will require something closer to seven years than two.  On the other hand, it was swift, as in 1987, which only needed two years to recover.  And on the other other hand (if only we had three hands), none of the listed prior down markets were as global as the one we have experienced this time around.

The current path of market price recovery is at the 4-year rate.  If the recovery will take more than 4 years, then the recovery rate will have to moderate (decline and then rise; or rise at a lower angle of incline).

At the moment, the recovery is essentially intermediate between the fast recoveries of 1980 and 1987; and the slow recoveries of 1973 and 2000.

The chart above plots trend lines that would lead to recovery to the 2007 peak price level over 2, 3, 4, 5, and 6 years.  The red cross hairs with the black box at their intersection, represents the common view among many sell-side analysts that the s&P 500 will close the year around 1300.

We ask whether it is reasonable to assume that the recent crash and current global conditions warrant a faster recovery than after 1973 and 2000.  We don’t think it should, but markets are not constrained by “should”, although it is helpful to have the “should” in mind.

In the end, markets do what they do and not what analytic projection says they should do.  What do you think the S&P 500 should do based on comparison to prior situations?  What do you think it will do?

Holdings Disclosure:
As of March 3, 2010, we do not have current positions in any securities discussed in this document in any managed account.

By Richard Shaw 
http://www.qvmgroup.com

Richard Shaw leads the QVM team as President of QVM Group. Richard has extensive investment industry experience including serving on the board of directors of two large investment management companies, including Aberdeen Asset Management (listed London Stock Exchange) and as a charter investor and director of Lending Tree ( download short professional profile ). He provides portfolio design and management services to individual and corporate clients. He also edits the QVM investment blog. His writings are generally republished by SeekingAlpha and Reuters and are linked to sites such as Kiplinger and Yahoo Finance and other sites. He is a 1970 graduate of Dartmouth College.

Copyright 2006-2010 by QVM Group LLC All rights reserved.

Disclaimer: The above is a matter of opinion and is not intended as investment advice. Information and analysis above are derived from sources and utilizing methods believed reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Do your own due diligence.

Richard Shaw Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in