Andy,
I don’t want to hijack this thread, but if you see this, can you please look at my other post - wanted to ask you about how you decided the snowflake valuation…I might have something to learn from that, thanks
One thing to keep in mind is that a recession has nothing to do with the stock markets. A recession is when there are two quarters of shrinkage in the economy. Two quarters of falling GDP. The stock market has no bearing on that determination.
Now it is true that stocks in general tend to not do well before and during a recession, and they tend to recover before a recession is over. But stocks can go down without a recession, or just with smaller than anticipated economic growth.
So don’t try to tie stocks too closely to the general economy. Stocks do move somewhat with the economy, but not solely based on the economy.
Specifically, the low interest rates over the last couple of decades that Wendy mentioned up thread have been keeping the prices of stocks up. Now that those low interest rates are gone, stock prices no longer have that support and are not going to go up as quickly as they have been with that support.
If I were to attempt to project things out, I’d take a look at stock valuations back in 2006 or 2007 - the last time interest rates were somewhere close to their historical norms. Then use the growth in the economy to bring those prices to what they would be today. The difference between that projection and the current prices would be a very rough estimate of the effect of low interest rates. Then continue to project that historical price into the future based on estimated economic growth going forward to see how long it might take to get that estimate up to current stock prices. That might make a rough estimate of how long the stock markets could be relatively flat.
–Peter
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