Recessions share a few things in common, and not just that they involve broad, deep, and persistent declines in economic activity. Another common feature is that they breed their own recovery. During a recession, businesses and households improve their productivity, with difficult-to-measure contributions to real economic growth that ultimately sparks increasingly generalized risk-taking and confidence in future generalized growth. Stock prices tend to recognize and reward those efforts, and in timely ways that help anticipate recoveries.

As I mentioned earlier this week, the 1990-91 recession has much in common with the latest downturn. How did stock prices do during and after the 1990-91 recession, and what can we learn from that episode?   More 

Not in terms of nominal share prices, that is. In "The Nominal Share Price Puzzle," a recent article in the Journal of Economic Perspectives, William Weld, Roni Michaely, Richard Thaler, and Shlomo Bernartzi observe that the average price for a share of stock on the NYSE--around $35--has changed little since the Great Depression. In real dollars, the average price has declined by more than 90%.   More 

I'd written previously about the relatively low-quality/high-risk profile of the stocks that have led the rally off the market's March 9 low. Financials, consumer-discretionary, and industrial/basic materials names have been in; defensive issues like health care have been out, at least on a relative basis. (We'd also note that what seems to separate this rally from the other "short-covering" rallies we've seen since last fall is its breadth--it hasn't been narrowly confined to financials.)

Naturally, this spurs talk of whether higher-quality names--ie, those that derive sales from recurring sources of demand, that boast a difficult-to-replicate low-cost business model, that throw off gobs of cash, and that have relatively little debt on the balance sheet--will be left behind.   More 

In case you missed it, Jack Bogle was interviewed for the January/February issue of the Financial Analysts Journal. As he's done before, he forecast future stock returns with the following formula:   More