Economic Recession - The Subsequent Effect on the Stock Markets

We are all into deep economic recession and almost everyone’s facing the market crunch. With the stock markets decline, prices rising and more layoffs in companies, it’s surely a tough financial crisis to deal with. However, the stronger impact of recession can be seen on the stock market. Here are some of the stock market trends during economic recession.

The recession of early 1980’s had lasted for nearly18 months, starting from July 1981 till December 1982. During this time, the US stock market saw the steepest decline in August 1981, the next 5 months showed a 35% rise. During the recession of 1990-91, the stock market saw the market collapse in October 1990. At that time, the recession ended in March 1991 and in the next few months, the stocks rose 28 percent.

This study shows the stock market trend during recession, which rises from the bottom in about five to six months, and gets back to 28-35%. But, what will be the stock market scenario this time? Some experts say that the stock markets have already hit the extreme bottom levels and now its time for companies to pick growth.

Understanding the stock market function

In order to understand the affects of economic recession on the stock market, it is necessary to understand how it works. The two words that move the market up and down are ‘investor’s expectations’.

When the stock market is healthy, more investors buy more stocks because good economic news implies that business will earn profit and there will be plenty jobs. When more people and institutions buy stock, the stocks go up.

When there is bad news about the economy, like the setting in of economic recession, just the reverse happens. Investors get scared and sell of all their stock. Thus, as the number of seller increases than the buyer, the stock market goes down. This is one of the primary and most important indicators of an economic recession.