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The "Worst Is Over" Crowd Is In for a Shock

While I agree the worst is not over, I believe we are 3/4th of the way through. The problem now is the US election is in the way adding to the uncertainty. However, the stock market will begin to start to recover much before the end of a recession given that it is forward looking.

So far it seems to be an ordinary recession. We can draw some lessons from previous ordinary recessions.

The fall in the stock market from the peak of the business cycle to the market lowest level in the recession was 21.0% in the 1970 recession, 33.88% in the 1974-75 recession, 10.6% in the 1980 recession, 18.2% in the 1981-82 recession, 14.6% in the 1990 recession, 10.3% in the 2001 recession.

In terms of length, modern recessions have lasted an average of 11 months ( range is 6 - 16 months).

The stock market peaked in early October 2007 and most economist believe that the US recession started in December 2007. Therefore given the historical context I believe we should start looking for the stock market to bottom this fall or early winter and start recovering thereafter.

In summary, my educated guess for the market is another 5 - 10% to go, with a bottom within 3 - 6 months.