Has the stock market ever been so high before a likely recession?

[enoriverbend]

Well, yes, the stock market often looks high before it falls back -- but you didn't ask the important question: "High compared to what?" Since the stock market as a whole has consistently risen over the LONG term, then of course it will often be at or near new highs before something bad happens -- but it will also be at or near new highs when the bad thing's quite a way off, too.

That's why a better way to judge whether it's "high" is to compare P/Es, for example, and particularly P/Es in relation to what you think earnings are going to be in the short or intermediate-term future. And that's particularly interesting right now.

Aside from the ongoing credit/mortgage debacle, earnings are holding up OK and the P/E of the S&P 500, for example, don't look really expensive. So predicting that the S&P will go up or down in the intermediate-term future partly depends on whether you think that the credit problems are enough to make earnings of *non*-financial companies tumble down too. (If it's only financial companies, or better yet only some financial companies, then the problem will be contained and the impact, while non-trivial, will be less.) The Fed's actions have the net effect of lessening the impact, but it's not like they control everything, they only have a couple of relatively crude levers to yank on.

I think that the impact will be contained but I am not completely confident or secure in this thought, and am trying to keep track of the various hints that the problem will be more or less contained.