Brace yourselves. You know what’s coming. The uber-bear is about to speak.
You’d have been better sticking your precious haul in a money market fund last year than tracking the stock market, notes economist Nouriel Roubini at his RGE Monitor blog. With the S&P500 ending the year up a paltry 3.5 per cent, equity market gains came in below those of a money market fund or a basket of short-term US Treasuries, and below inflation.
And the year ended with scant sign of hope for the twelve months to come, he adds, with data showing soaring defaults on insured mortgages and slumping sales of new homes. Plus a Reuters story notes a swing in the outlook for Q4 earnings, with a steep decline in forecasts on the back of banks’ writedowns and an ailing economic scene.
But stand by:
compared to 2007, 2008 may be real bearish for stocks: in a typical US recession the S&P 500 falls by an average of 28% in nominal terms and 21% in real terms.
Small wonder, says Roubini, as recessions come hand in hand with sharp drop-offs in earnings, to the tune of 15 to 20 per cent. Specific sectors – financial, home-builders – have already taken a battering.
The next shoe to drop will be all the other cyclical sectors of the economy that will seriously suffer from the forthcoming recession. So while 2007 was lousy for the US market 2008 may end up being much worse. Even more than in 2007, in 2008 cash will be king.
And a happy new year to you too.