Upturn Sooner Rather Than Later?

Companies deciding whether to move forward now with acquisitions or major capital projects should weigh the historical data on the timing of stock market recoveries. One common analysis calculates how many years must pass before the market returns to normal, assuming growth at the long-term average rate of 10 percent annually. In past recessions, however, the stock market came back from the trough much more quickly, with cumulative returns–over the two years that followed it–of 50 to 130 percent. If this pattern holds in the current downturn, companies waiting too long could miss the upside of the rebound.

Cumulative returns to shareholders (TRS) increased from 36 to 63 percent from the recession years 2000-2002. By comparison, TRS increased from 34 to 72 in the years 1990-1992; from 66 to 113 during 1980-1982; from 46 to 77 from 1973-1975; and from 129 to 176 between the years 1929 and 1932.

Source: McKinsey Quarterly

Companies deciding whether to move forward now with acquisitions or major capital projects should weigh the historical data on the timing of stock market recoveries. One common analysis calculates how many years must pass before the market returns to normal, assuming growth at the long-term average rate of 10 percent annually. In past recessions, however, the stock market came back from the trough much more quickly, with cumulative returns–over the two years that followed it–of 50 to 130 percent. If this pattern holds in the current downturn, companies waiting too long could miss the upside of the rebound.

Cumulative returns to shareholders (TRS) increased from 36 to 63 percent from the recession years 2000-2002. By comparison, TRS increased from 34 to 72 in the years 1990-1992; from 66 to 113 during 1980-1982; from 46 to 77 from 1973-1975; and from 129 to 176 between the years 1929 and 1932.

Source: McKinsey Quarterly

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