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When economy bottoms out, how will we know?
WHEN WILL THE BOTTOM COME?: In downturns over the past 60 years, the S&P 500 has hit bottom an average of four months before a recession ended and about nine months before unemployment hit its peak.
Investors will be looking for turnarounds in housing, lending and employment, plus signs that consumer spending has picked up. Then market players would be more likely to move their money from safe havens, such as gold, back into stocks.
Other investors may look to obscure indicators such as the Baltic Dry Index, which tracks the cost of shipping iron ore, grain and other materials. Rising rates can indicate demand for raw materials is increasing, which suggests a strengthening economy.
But most of all, traders are waiting for a sudden spasm of selling known as capitulation. That wrings fearful investors out of the market, and as they rush out, bargain-hunters rush in. Capitulation would trigger a huge plunge in prices and frenzied trading volume.