This note compares the experience in the US today with that in Australia in the early 1990s when it was recovering from a similar financial crisis and major recession.
The key points are as follows:
– Shares normally go through a tough patch in the second year following a bear market low. This can reflect worries about monetary policy tightening or worries about a double dip back into recession.
– This is certainly the case in the US this year, where double dips fears have intensified, and this has affected most global share markets.
– The US today appears to resemble the performance of the Australian economy and share market following its early 1990s financial crisis and recession.
– Double dip fears were also a big worry in Australia in 1992, contributing to a difficult year for the local share market at the time. However this gave way to better conditions in 1993. The US may be following a similar path.