Saturday, April 28, 2007

Stock Market Highs And Recessions

Blogger "Kash" has an interesting post reminding everyone how stock market highs are often followed by recessions. The archived news story he puts up tells of how the U.S. stock market reached record highs in June 1990, just a month before the start of the 1990-91 recession. Then, as now, this was driven mainly by increased profits of the foreign affiliates of U.S. companies, a factor which is even more important today when the share of both revenues and costs that come from within the U.S. for U.S. companies have declined significantly since 1990. This means that the stock market is even more unreliable as a leading indicator of the economy then it was in 1990, when it reached all time highs just a month before the start of a recession.

Update: Here is more, in the New York Post, about how the fortunes of U.S. big corporations (And by extension indexes like the Dow) are increasing reflective of foreign economies rather than the U.S. economy.


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