How to know when a turnaround is at hand

Are we there yet, are we there yet?

That annoying back-seat whine may be more vocalized by adults this year as we anxiously await the end of our long day’s journey into night.

MY OPINION: THOMAS OLIVER
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Before recovery can commence, we must reach the bottom. What will that look, feel like? How will we know we’re there?

As when you are sick, you begin to feel better before you’re well. In this case, you may notice you aren’t as fearful. Aren’t as worried.

This might be exhibited by your actually opening the 401(k) statement you get in, say, July.

By then, the market will have been saying for a month or more the worst is over, as the stock market often signals a recovery as much as six months out.

Phil Larkins, a senior money manager at Northern Trust in Atlanta, says his bank’s best forecasters see a recovery beginning in the fourth quarter. In which case, the market would need to begin its own recovery between now and June.

What will that look like? The S&P 500 or the Dow needs to rise by 15 percent and hold it for a month, Larkins says. All other run-ups are merely head fakes.

For the stock market to lead us out of this wilderness, the psychology has to change, says Dorsey Farr of the French Wolf & Farr wealth-management firm.

He looks for the conventional wisdom to turn so bearish that we’ll begin seeing cover stories on the Death of Equities (referring to a 1979 Business Week cover). Conventional wisdom in this case, as then, would actually be a buy signal for the Farrs of the world.

Jeffrey Humphreys, director of forecasting at UGA’s Terry College of Business, sees the recovery being led by the consumer, specifically consumer spending.

Not just any spending, which like breathing, continues if only for necessities and congressional earmarks. Humphreys is talking about discretionary spending — jewelry, vacations, electronics, etc.

While discount retailers like Wal-Mart have shown increases, it’s been fed largely by staples and foods.

When Wal-Mart reports that its customers are moving more into discretionary products, Humphreys says we’ll be on the mend.

The unemployment rate, though closely watched, is actually a lagging indicator. If you are watching for the bottom, look to the four-week average of initial unemployment claims or the non-farm payroll reports.

Roger Tutterow, economics professor at Mercer University, suggests we also pay attention to the Conference Board’s Index of Leading Economics Indicators. It comes out monthly. It has increased slightly for two months in a row.

“You want to see several months of positive indicators,” Tutterow says.

Unfortunately, this week’s report on February is likely to be down.

Which means we aren’t there yet.