Recession of 2007 - 2009 Compared with Others

I thought it would be interesting to compare the current recession we are in to the average recession in the the last 25 years. Recession's are normal cyclical events that happen on average every 7-8 years or so. Although the media often blows things out of proportion, without recessions, we would eventually have bubbles in every market, which would eventually collapse, causing a much more severe event, called a depression.

In the last 15 years, not counting the last 2 which are part of the current recession, the average recession lasted only about 8 months. The current recession we are in right now, however has lasted over twice as long, at 17 months and running. With any recession, there is a bear market as well. The average bear market between 1983 and 2007 lasted 1 year (12 months). The current bear market that we just saw lasted 19 months. The bear market is over, at least for now, but the recession has yet to officially be declared over, and likely won't be for some time to come. Even if the recession is over, it will take about 4-5 months to determine that for a fact.

Despite the negativity of it all, there is some good news. The bear market appears over, thus we are likely at the start of a bull market run. A bull market, unlike it's evil twin brother, the Bear market lasts on average about 4 years or about 49 months. Since we are starting at such a low base, it is likely this bull market will be stronger than most. The average Bull market can show returns over 100%, with one third of that gained within the first 12 months. The lesson of this is that despite all the negative media over the last 12 months or so, things probably won't be as bad as most experts were predicting, and the great thing about it is that if you have cash on the sidelines, and a little risk to bare, now is an amazing time to invest in the market with a long term horizon.

3 Possible Scenarios for The Bull Stock Market

Over the last 3 months we have seen the major US markets rise almost 40%. That is an unprecedented increase in stock prices, one that any investor would love to have in a 5 year period, much less only 3 months. Investors however are now asking, "what's next?" Below are 3 arguments and my personal opinion on their likelihoods of happening:

The Market Is Overbought and Sells off for Big Losses, Dow Back to 7000
It is possible that the market has gotten too far ahead of the economy. The markets are usually 6 months ahead of the economy, so right now it's pretty much saying that a recovery will be in the works within 6 months. A 40% gain in only 3 months is staggering, and even if things were looking amazing for the economy such a gain is hard to maintain without some pullback. Could we pull back into the 7000-7500 range for the dow?
I give this a 20% chance of happening.


We level Off but maintain current levels for the next few months?
Even though the market has risen quite a bit, the optimism and good values keep things steady and in a range of 8500-9000 for the next few months until we get more solid news on the status of the recession. A mix of good and bad news will keep things bouncing around in a rather narrow range until August or September.
I give this a 45% chance of happening.


Good news continues to keep the Market Rising, perhaps to 10,000 - 10,500 by September.
With stocks that were way undersold, still being cheap, and news continuing to mount that the recession is all but over, the markets could react favorably. Sure we have gone up 40% in 3 months, but in order to get to level we were at before the whole Lehman Brothers mess, we would still have to rise another 25-30% from were we are at right now. With a mixture of Good news, and companies reporting earnings better then expected for the 3rd quarter, we could see the dow approach the 10,000 mark or even higher by September.
I give this a 35% chance of happening.