Forget Stock Market Outlooks, Watch the Economic Data

I am working on some more in-depth posts on the state of the economy with some predictions as to where we might go from here.  Investing well in the stock market requires a study and understanding of economic data.  As we are all discovering this year, it is not enough to follow the crowd (sometimes it works, sometimes it is extremely dangerous – think about how many times this year the “smart money” declared a market bottom), one must always be ahead.  That means being aware of economic trends, like inflation and (gulp) deflation, interest rate movements, money supply, employment, manufacturing, shipping, trade agreements – basically the whole panoply that makes up the discipline of economics.  Now, not everyone can take the time and effort to become an accomplished economist.  However, as I have often noted, this blog is designed to lift that burden from your shoulders by giving you the information and analysis to help you with your personal financial decisions.  [Hint: In the near future, I may begin offering investment advisory services - details to come, please stay tuned.]

I should have the posts I’m working on up over the weekend, including the popular Economic Roundup.  In the meantime, please enjoy these stock market outlooks as compiled by RGE Monitor:

• Citi: S&P and DJIA to end 2008 at 1200 and 10800, respectively, but S&P may touch 800 by yearend. The cash position of non-financial constituents of the S&P500 as a percent of their equity market capitalization is at about the same level seen after the 1987 crash and the 2000-02 sell-off, which provided some insight to a market bottom [GK: Anyone wonder why Citigroup's stock is headed to zero?]
• ML: After RTC was established in 1989, it took 1 year for the stock market to bottom, 2 years for the economy to bottom, and 3 years for the housing market to bottom. Our new 12-month target for S&P 500 is 1248. Valuations are more attractive now but credit crisis worries will prevail
• Hussman: Market hasn’t bottomed yet b/c recession is not yet broadly recognized [emphasis added]. Recession-induced bear markets tend to be longer, more drawn-out affairs than stand-alone bear markets [GK: This is dead on.]
• Bear market rallies average 4 months on overconfidence that ‘worst is over’ [GK: There may yet be one coming, but volume is so light these days, I may have been wrong.  Instead, I think the rally already occurred between March and June 2008, and then again in August to mid-September]
• Shares normally bottom ~5 months before end of recession (see Stock Markets and Recessions) [GK: Consider that and ask this question: Are we only 5 months from the end?]
• BNP: Once recession commences, stock prices have on average fallen about 14% during first 6 months of recession. The longer the recession, the further the decline [GK: We can stop calling this an ordinary recession - no lending = no business = no jobs = no consumer spending = deflation = no stock market]
• ING: Average return on S&P 500 has actually been higher in quarters of negative GDP growth than in quarters of low but positive growth
• Bespoke: Average Nasdaq bear has been 216 days long for an average decline of 36.51% [GK: Nasdaq is currently down 49 percent for the year, there is nothing average about this situation.]