Is It 1990 All Over Again?

There is a certain point of view expressed by more than a few economists and strategists equating the current so-called consumer-led recession with the last actual consumer-led recession of 1990. If that is the case, then a little factual information might help.

The table above lists the salient data for the period immediately before, during, and after the 1990 recession. For comparative purposes, I have added the same data for the current period leading up to the market top last October.

In the early 90’s, the actual consumer-led recession resulted in operating earnings declining 20.6%, the 10 year Treasury began its multi year slide (eventually to 5.4% in Sept. 1993), and P/Es expanded as the equity market experienced its “bear” market in short order. How short?

The chart* above shows the extent of the “bear” market in 1990 – a touch over 20% in all of three months. The chart also shows how the “bear” market of 1990 did not test its lows once it got going to the upside climbing a wall of worry in the process.

Investment Strategy Implications

Going into the current “bear” market, P/Es and rates were hardly at inflated levels last fall. This fact is even more the case now that stocks have declined by a double-digit amount.

What this brief tour of the facts suggests is that investors must believe that the current “bear” market and consumer-led “recession” has more pain in store than the earnings and the market experience of the early 90’s. If not, then history may repeat itself by producing a painful yet brief “bear” market - if it hasn’t already.

Comments

[amateur]

Well S&P is @ 1350 already. Now if earnings fall to 80 and multiples to 13, that give a scaring 1040, is that yr view?

[jcrash]

I think you need to re-read the article, amateur.

You've crossed a wire. In general, the market is a leading indicator. So, the multiple will be low BEFORE the recession and HIGH during it. Once earnings are down, the market will look forward to them going up, thus the market moves up.

You've got them both moving down at once. While you could make a case for that, it would not be your typical recession and would definitely not fit the expected non-recession or recession case.

[thecadean]

Forget 1990. Obviously, this writer is too young to draw the true comparison--- 1974

[mkreisel]

To reach the disaster level of 1974, a major political crisis and a major geo-political shock must occurs simultaneously.