It’s Beginning to Feel a Lot Like… a Recession

So it’s official: we’re in a recession. On Monday, the mere confirmation that we’re in a recession caused the Dow to drop 680 points. Did we need more proof? The auto industry has been on the verge of collapse for the past few months. Banks are still on life support, trying to raise capital. And yesterday, Harvard announced that its endowment lost 22% of its value in the past four months, or, oh just $8 billion.

And how are our harbingers of corporate America doing?

• Google (GOOG), which was approaching $700 at the beginning of this year, is now trading at $280
• General Electric (GE) is currently trading at $18, a ten-year low, and down from $37 since March
• Goldman Sachs (GS) closed at $199 in May, a mere six months ago; since then, its stock has fallen 65%, now trading at $68

It is not a good time to be checking your 401(k).

It seems like the complete desecration of the stock market has come painfully fast. So, out of curiosity, I looked up some of the other recessions in this century to see if we saw similar declines in the market. According to the gospel of Wikipedia, these are the official recessions since 1929 that have lasted over two years:

• 2001-03: Bursting of dot-com bubble, September 11, Enron and Worldcom scandals
• 1980-81: Result of 1979 energy crisis and tight monetary policy to control inflation
• 1973-75: High oil prices and Vietnam War leading to stagflation

From Google Finance, I looked at a four year period before and after the recession – I’ve also included the largest % declines in the Dow during this time.

Some things that jump out:

• With our current recession, it’s only been a year, and the Dow has already lost 36%, or over 4,800 points. The last time it was this bad, during the 1970s, this pain was spread over two whole years.
• Bottoming out seems to occur about 1.5 to 2 years after the high point… which means we might still have some time to fall.
• The good thing is, in all cases, we see the Dow bouncing back a few years after we hit rock bottom… so, if we’re patient, our 401(k)s may recover their losses in a couple years.

Guess I’m waiting until 2011 to buy that flat-screen TV…

Updated (3/11/09): Four months have gone by, and Google and Goldman seem to have recovered nicely… while GE is now trading around $9. Hmm. But not to worry, the General certainly has company: the Dow is now 51% removed from December 2007, versus a mere 36% in December 2008. Again, just by looking at these graphs of the previous recessions, it seems like we’ve got at least two years to go from the peak… By my calculation, it’s looking like December 2009 may be the inflection point where the market will finally bottom out and perhaps start turning up again. With the way things are going now, I’d hope so.