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Crashing or soaring, stocks don’t predict the economy

It was 34 Labor Day weekends ago that I moved west to join the Orange County Register.

It was a culture shock to this New York City native who had just spent 11 years in Pennsylvania — four in Philadelphia for college, seven years working for the now-shuttered Pittsburgh Press.

The weather. The vibe. The food. Oh, and from a business journalism perspective — seemingly nobody in Orange County cared about the stock market.

Oh sure, folks had a few shares in retirement accounts. A handful worked at publicly traded companies. But this is an entrepreneurial economy where real estate is the monetary passion.

This thought came back to me on my professional anniversary because I realized I’ve just survived my fifth Wall Street “bear market” here. 2020’s sharp drop and swift rebound in share prices came as the economy struggled with business limitations designed to slow a pandemic’s spread.

The year’s ups and downs of stock trading generated some eye-catching headlines. Many nervous stomachs wondered if nest eggs would ever recover. (Pro tip: Don’t look at your 401-k statements!)

But one reason the stock market doesn’t resonate in Orange County is that it often feels like economic noise. Indulge me in a stroll down Wall Street’s dark side of Memory Lane, noting that an “official” bear market is a period where key indexes fall by 20% or more, peak to trough.

1987’s crash: Shortly after my first anniversary in Orange County there was the ugly end of the largest stock upswing since post-World War II bull markets.

The infamous Oct. 19, 1987 “Black Monday” meltdown saw 22% of market value evaporate in one trading day. Overpriced stocks spooked investors into selling frenzy. That era’s trading tools were ill-equipped for the flood of transactions, amplifying the panic.

Economically speaking, this bear market — a 30% loss in total over three months — proved more a case of trader’s nerves than business forecast.

No national recession followed. And in Orange County, the cheap money used to soothe nervous investors helped push up local home prices by 53% over the next three years, according to one federal home-price index.

1990’s malaise: The next bear market was mild, barely reaching the 20% drop threshold. That said a lot about what was to follow.

Yes, there was a meek national recession. Locally, we saw an extended period of economic lethargy.

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Local home values, as a measure of this chilled business cycle, fell six straight years. Yet the losses added up to a modest 16% drop.

2000’s tech tanking: In a county with a long history of electronics innovation tied largely to military contractors, there was not much of an O.C. tech sizzle.

So Orange County, corporately at least, wasn’t hammered much by the catastrophe. This down-45%, two-year bear market trashed Internet-related shares and landed a heavy blow to tech-savvy Northern California.

Once again, the outpouring of cheap money (ahem, and bad lending) fueled another hot O.C. real estate market — up 137% in six years.

2007’s bursting bubble: By the time stocks began this 56%, 17-month bear market dive, Orange County housing was in freefall — a disaster that added up to a 32% home depreciation in five years, by the government’s benchmark.

Stupid mortgage making, some of it pioneered in this county, took down the global economy. But you found no warning signals in your 401(k) statements for a real estate debacle that became the Great Recession.

2020’s pandemic: If you didn’t know, technically speaking, you’ve already survived the shortest bear market in history.

Shutting down a national economy — and some industries have barely restarted — created unprecedented uncertainty. In what felt like a heartbeat, 33% was slashed from stock values in late March. Then almost as swiftly — as investors began separating the pandemic’s business winners from the losers — the bear market’s damage was erased by mid-summer.

If you’re lucky enough to have recovered wealth in the pandemic, don’t spend it yet. The future of the virus is unclear. And the economy is by no means fully healed from coronavirus damage.

Because looking back to Labor Day weekend 1986, history tells us that stock gyrations don’t say much about the economy of Orange County.

PS: Over these 34 years, Orange County homes — as measured by the Federal Housing Finance Agency — grew five times more valuable. U.S. stocks? Up 13-fold — and that’s without dividends that nearly double that bounty! 

Source: Orange County Register

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