With markets selling off again in the face of dire economic data, it is worth stepping back and putting things in perspective. Although today’s UK unemployment data was dire and sales projections from Best Buy below consensus, markets haven’t capitulated. Despite the economic outlook arguably looking bleaker than it did just two weeks ago, markets are holding above the October lows. The optimistic interpretation of this scenario is that the bad news is starting to be priced in by the stock market. As markets are forward looking by at least 6 months, markets could be discounting the slowdown that virtually everyone is predicting and are looking for what happens after that.

The pessimistic interpretation of the current scenario is that markets are as over optimistic now as they were a couple of months ago. The default reaction to any impending disaster is in most cases denial then panic. The pessimist would argue that investors are still too optimistic about companies future growth prospects and so further falls are likely.

The reality is that markets are flipping from optimism to pessimism almost by the hour and markets remain entrenched in a choppy mess. After repeated failed rallies over the last few weeks, the bulls would be forgiven for giving up the ghost. 

There have been many comparisons between current market action and the great depression of the 1930s and in many ways these comparisons are valid. The last time markets were as choppy as they are today was indeed the 1930s. The world is a very different place to how it was 70-80 years ago, but the current extremes were seeing point back to this period as being a strong likeness. It is interesting to note that the stock market only recovered from is decade long malaise once it switched from chop mode to trending mode. If a long period of chop is the worst we experience over the next few months, even years, although frustrating, there may be worse things that could happen. Ironically, a smooth decline which bottoms out to form a smooth rally may be the real harbinger of a recovery. 

Dave Evans is a market analyst for BetonMarkets, the financial fixed odds betting firm. We do not endorse the information and analysis available in this comment and it is provided purely for information purposes only and is delivered as a personal view by the writer. Under no circumstances is the information in this comment to be used or considered as an offer to sell, or a solicitation of any offer to buy. While all reasonable care has been taken to ensure that the information contained herein is not untrue or misleading at the time of publication, we make no representation as to its accuracy or completeness and it should not be relied upon as such. The investments referred to herein may not be suitable investments for all persons accessing this page. You should carefully consider whether all or any of these are suitable investments for you and if in any doubt consult an independent adviser. We accept no liability whatsoever for any direct or consequential loss arising from use of the information on this web page. Please see our Terms and Conditions.