Recession cycles

After receiving quite a few questions about our current recession and other concerns about the U.S. Economy I thought it would be good to share a bit about the history of economic cycles in the U.S.

The only thing that remains the same is that things always change. We have had numerous recessions over the last century and we have had numerous times of economic prosperity. It comes, it goes, and repeats again.

The U.S. stock markets generally provide a good indicator of how the economy is performing. Below I have a spreadsheet that I found that shows the history of past Bear Markets or recessions. It is very encouraging to notice that of the 24 bear markets during the last century, none of them have lasted more than 3 years with the average length being only 15 months.

Another important thing to remember is that on average, 1 year after the bear market is completed, the market (DJIA) is up 44%. In fact there was only 1 time out of 24 that a year later it wasn’t better than it was when the recession ended.

The bottom line of all this is that recessions are a normal part of the cycle. We have high times and low times. The U.S. is just in a bit of a low time right now. History is not a perfect indicator of the future, but it is about the best predictor we have. Using the data from the previous recessions, it is pretty reassuring that everything is going to be okay. In fact, I would be willing to bet that shortly after this recession ends we will have a huge economic boom. That just seems to be the next phase of the cycle.

Does anyone else have any other hope-filled news about the current economic troubles?