Tuesday, May 5, 2009

Stock Market has a Different Opinion Now than Two Months Ago

The stock market is much higher now than it was two months ago. Part of the increase must be a reassessment of the probability that this recession could get significantly worse (now it looks like we've seen the worse).

But the stock market is still lower than it was in November. Does that mean (if anything) that a recovery is still a long way off? I believe that this recession has to end with the stock market's being lower than when it started, because, while this recovery will have some housing investment, it will not have nearly as much as during the "housing bubble" and therefore existing businesses will face more competition from new ones than they faced during the housing bubble (see also here).

Simply put, the stock market two months ago was too low to say a recovery was near. But it's high enough now, even if not at pre-crash levels.


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