Just when the economy is at its low point, stocks begin recovery
A 
deep recession coupled with a bear market for stocks usually makes investors more and more pessimistic about the future.
Yet it is often just at that maximum moment of pessimism that the stock market begins to rally. In most cases stocks have produced double-digit returns in the 12 months following the economy’s bottom.
A recent study by Mark Riepe, head of the Schwab Center for Financial Research, found that investors profited well after 9 of 10 low points hit during recessions since World War II.
GDP is key
He calculated stock market returns beginning in the calendar quarter when Gross Domestic Product, a measure of all goods and services produced in the United States, hit its lowest point.
The average return for the Standard & Poor’s 500 Stocks Index was 22 percent over the next 12 months. The gains ranged from 15 percent in 1949-50 to 45 percent in 1953-54.
There was one exception: after GDP hit its low point in the last recession during the third quarter of 2001, the market went on to lose 22 percent over the next 12 months as tech stocks continued to suffer.
“It is hard not to be at least a little perturbed by the fact that the one negative result just happens to be the most recent,” Riepe said.
Job loss rallies
Another low point in recessions is marked by the point of maximum job loss. Again, Riepe found that in the year following the month with the worst job loss, the market was up by an average of 23 percent.
The exception again came in the last recession. Payrolls hit a trough in Oct. 2001, but the market continued to fall by 16 percent over the next year.
What’s the lesson for investors? Unfortunately, as Riepe notes, no one rings a bell when the economy hits bottom. We are not certain that the bottom has been reached until well after the fact, usually too late to get in on the gains.
That means it is hard to use this information to time when to buy stocks.
Instead investors who want to participate in market recoveries should remain invested throughout a recession, he argues.