Do Stock Prices Reflect Economic Growth?

What would Nouriel Roubini do if he was faced with the choice between writing

something short and writing something bullish? Today he spends almost 5,000

words wondering

what will happen to stocks if the US economy goes into a recession. (You’ll

never guess what direction he thinks they’re headed in.) Along the way he revisits

what happened to the stock market during the third quarter of this year:

The August liquidity and credit shock severely tested the stock market downward;

then you had a first sucker’s rally on August 16th when the Fed announced

the switch from a tightening bias towards an easing bias. A second phase of

this sucker’s rally occurred on September 18th when the Fed surprised the

markets with a 50bps Fed Funds rate cut rather than the 25bps that the market

expected. Then equities kept on rising, in spite of worsening economic and

credit news, all the way until October 9th.

I wonder if Nouriel might get out his charts and tell us what he’d expect stocks

to do during a quarter in which the economy grows

at a 4.9% rate.

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