Analysis Of The Great Recession

In my previous paper, I analyzed how labor markets rebound after a recession. I found that unemployment served as a lagging indicator while jobless claims served as a leading indicator and, perhaps equally as notable, that recessions from 1991 and later had a much slower rate of recovery according to the same labor statistics. To build off that, I will analyze equity markets and how those fluctuate during economic recessions as well as looking at how this may affect the average American. The stock market is often seen as a great predictor of future economic activity. Stock prices reflect the aggregated feelings of each investor who are generally forward-looking. It is even considered a leading indicator by The Conference Board Leading Economic
On average, the Wilshire Index peaks 5.2 months prior to the beginning of a recession and bottoms out 5.0 months prior to the end of the recession. Not all recessions since 1970 look exactly alike, sometimes markets held relatively stable for about the 8 months before the official start of the recession, but in all cases the peak occurred within the year before the start of the economic recession.
On the front end of the Great Recession, stocks peaked about 6 months before the recession began. They held stable until the downturn began two months out. This alone would not have foreboded the worst economic downturn since the Great Depression, but once again the stock market was ahead of the game. On the other end the market usually bottomed out 5 months before the official end of the recession, further cement the idea that stock prices are a leading indicator. Jobless claims were found to peak only about 2.6 months before a recession typically ended, meaning the stock market is a much earlier predictor of economic health. Once again the Great Recession lines up very well with this average, hitting its trough 4 months before the official
Investor confidence was very low as both inflation and unemployment remained high. Another key aspect was the oil shock caused by OPEC’s embargo. Oil prices were sky high in the late 70’s, causing a drag on just about every market. Interestingly, oil prices skyrocketed once again in the early 2000’s when the US once again experienced low post-recession growth. Some slow recoveries can be contributed to the amplitude of the recession, but I believe that investor confidence plays an equally significant role in markets fresh off a downturn. Oil is a market where both average consumers as well as corporations are both significantly invested. The U.S. for a long time has been very sensitive to changes in oil price, so it comes as no surprise that fluctuations can create negative market sentiments. Two years removed from the lowest point of the 2001 recession and the markets still hovered below 10,000 points. The Great Recession showed a little more resiliency from it’s lowest point, but it did not reach pre-recessions norms until about 2 years later as well. Meanwhile the other three recessions, less burdened by global uncertainty, saw almost immediate and sustained growth.
This uncertainty would presumably have an effect on the average investor. The volatility of the stock market has significant effects, especially on individual investors. Typically investors move over to bonds, which offer safer investments