Abstract
The purpose of the study reported in this article was to examine the long-term record of several equity indexes to determine what the relationship of the cyclical turning points of security prices has been to the turning points of general business. Data from the DJIA and S&P 500 Index (composite and industrial subindexes) were plotted by year, with indications of business peaks and troughs. The lead/lag for each index peak and trough was compared with cyclical turning points in general business conditions, as determined by the National Bureau of Economic Research. The average lead/lag, range, and standard deviation were computed. Also tested were the effectiveness of the indexes in marking business peaks and troughs. Although stock prices may not be as reliable indicators as in the past, they still have some forecasting significance—particularly when taken in conjunction with other indicators of business activity suggested by the NBER.
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