Market participants tend to talk about the stock market as "always" bottoming before the economy. Such bullish arguments presently forecast the economic bottom to trough this fall and therefore argue that March 2009 was "the" stock market bottom this cycle, neatly 6 months in advance of the economy. This theory may prove correct in the end. Only the clarity of retrospect will tell us for sure a few years down the road.

But a risk now is that the "rule of thumb" about markets bottoming before the economy may not hold true this time. The most recent exception was the last downturn where the economic trough was November 2001 (now clearly defined in retrospect) and yet the stock market did not make a lasting bottom until February 2003 (15 months later). Part of the reason for this lag of the market bottom after the economy last time, was that the jobless, anaemic economic recovery disappointed those conditioned to expect a vigorous "V". Far from a robust bounce, in 2001-2004 we saw a timid, tepid start. It took a few years before over-juiced credit finally ignited mass speculation and the appearance of stronger growth.

The probability of a sluggish recovery this time is surely higher than after the tech wreck in 2000...   more »