When Will An Economic Recession End? How to Know In Advance

By Dave McLachlan

Economists and investors in finance centres around the world have been asking this question for decades:  How can we tell when an economic recession will end?  I am going to show you exactly how, and how to tell in advance.

Times during an economic recession always seem tough, but there is always a time when they come to an end.  Imagine if you or your business were ready to take advantage of the new economic times because you saw it coming?  Or maybe you could have your resume ready for that new job offer, just as more jobs become available.

So, how do we tell when an economic recession will end?  The answer is extremely simple – and yet it has been proven over many decades of data this last century.

It is something that you can easily research at home, and something even your kids would be able to discover quite simply.

A wonderful little book called “The Wall Street Waltz” holds the answer – written in 1986 by Ken Fisher.  Fisher was one of the first to discover that the stock market actually has a magical way of leading the overall economy.  This means that the stock market will start going up before an economic recession is over, and start going down well before a recession actually starts.

Let’s look at an example: Half way through 1948, the market topped and started to decline.  It wasn’t until 1949 that the recession “hit” consumers.  Then, just when people were despairing that it might last forever, the began an upward climb half way through 1949, and in 1950 the recession was declared over.

Or further: in late 1952 the market topped out.  Half way through 1953 the recession was declared.  The stock market had done it again!

We can see the same pattern in 1957, 1960, 1967, 1970, 1974, and then in more recent recessions like the early 1990’s and 2002.  The average time-frame that the stock market leads the economy by is 6 months.  Of course some will be more, and some will be less, but as a general rule 6 months is a good one to go by.

So what does this mean for you?  Well, the next time a recession hits (and it will), keep a close eye on the stock market.  When it starts to rise, in 6 months time you’ll be ready to take full advantage of a booming economy!

January 29, 2010  Tags: , , , ,   Posted in: Articles On Building Wealth

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