Can stock market crash in 2009?

I can’t predict with 100% conviction. Nobody does. History tells us that the first two initial years of any new elected American president are always problematic. When taken in isolation, we could see a scenario where this is countermanded by President-elect Obama’s planned stimulus, but given the potent combination of flagging earnings and slowing U.S. growth. However I don’t see a lot hope in this regard.

On the other side many analysts are saying that the mid of next year can see the revival of market. First, since the 1970s, the time between the first and last market lows in any given bear market is an average of seven to eight months. If historical trends hold true, this suggests we could see a bottoming out by the middle of next year. That’s consistent and plausible, especially since other data shows U.S. recessions, on average, last 14.6 months – which also points to a bottoming out in late spring or early summer. 

I think that most important of all is people are hoping for something good to happen till mid of next year, reality can be quite opposite. Literally, Small investors have fled the stock markets in droves, and so far they’ve yanked more than $175 billion from the markets, with nearly 50% of that coming out during October alone. Granted, this is a mere 3.2% of the $5.5 trillion invested in stock market funds, according to Forbes, but it’s the first year that net equity flows have been negative since … a drum roll please … 2002. In 1987, stock market crash caused the Dow to drop 508 points in one day, which was a loss of 22.6 percent of value. The causes for this crash were supposed to be the weak values of dollar and sudden disappearance of foreign investors. In 2000, the stock market crashed again when the dot-com-bubble burst and highly inflated Internet and tech companies lost their value all at once. The total amount of value that tech companies lost that year came to an estimated $800 billion.

In 2008 and 2007, again American economy is on the edge of loosing big bucks once again, going towards a big economic crash. This time, the economy was brought to the brink by something called the sub prime mortgage. The federal government has made several efforts to keep the markets from falling. But despite the government's efforts to prevent another stock market crash, in theory, a free market society isn't supposed to have any intervention in its economy. So you can imagine how bad things would have to get for the government to step in.

The OECD's projections assume that the financial stress since the banking crisis exploded in mid-September will prove to be "short-lived" but be followed by an "extended period of financial headwinds" through the end of next year, with conditions then returning to near normal. But emerging hazards such as further failures of financial institutions, emerging market economies being hit harder by the downturn in global trade and foreign investors turning even more risk shy could make the recovery take even longer. 

However as a caution I am giving you three options which will work in 2009, let’s hope they do so… The continuous de-leveraging of hedge funds and other financial institutions. 2ndly much more of the problems related to credit-default-swap. 3rd can be the unpredictable situations going on with U.S and global economy. 

There are still huge questions regarding how large the debts are, exactly who’s going to get what help and when and who owes what to whom. History shows that the most effective rescues are those that recapitalize institutions and that allow the weak to fail, which is why I am particularly doubtful of the U.S. government’s plan to attain bad debt while pleasing weaker institutions that should be put out of their desolation. As so many of these programs are in progress that tax payers of US and investors have been caught in big trouble or they are being put on side. As a final verdict I would like to say things are going to get worse, before they can get better, this betterment can’t be even expected before mid of 2009.

Maaz, freelancer of the Ecommerce Journal