![]() ![]() If we’re truly entering a bear market, then it’s possible that a recession could follow. Let’s take a look at the way the market has reacted to some of history’s worst bear markets:Īs you can see, bear markets can often usher in an economic recession. For the market as a whole, we can usually expect sharp declines. That up-and-down effect is usually only true of individual stocks. ![]() But these trends are often short-lived as the market continues its downward trend. This can cause temporary spikes in the market. Because of the growing uncertainty, the good news about any stock can cause investors to rush toward the hope of potential gains in droves. This is usually due to investors marking rapid-fire decisions in an attempt to recoup any losses they may have experienced. The trajectory of individual stocks can rise and fall greatly in unpredictable patterns. As a result, the market’s response to a recession is understandably volatile. It might go without saying, but it’s still interesting to note: when entire markets go down, the risk to investors goes up. So, if the equity and bond market are giving signs that a recession is here, what does history tell us we can expect? How does the market respond to recessions? Recently, this out-of-the-ordinary correlation between equities and bonds appears to be changing as investors seem to be starting to accept that the economy could have a “hard landing”. Here, we can see the market break the neckline shortly before the recession: If we look at what preceded the 2007 financial crisis, a head and shoulders pattern served as a prelude to the coming recession. When low-confidence bears selling their stock control the market, it often trends down.Ī head and shoulders pattern lets us see this battle play out through a recognizable pattern that indicates a bull-to-bear market shift. Because high-confidence bulls tend to buy stock, when they control the market, it often trends up. In simple terms, this pattern usually indicates a battle between those with high confidence in the market (bulls) and those with low confidence in the market (bears). A head and shoulder pattern can show us the push and pull of the market. Head and shoulders patterns are one such example. Luckily, we can also refer to facts, figures, and patterns. However, consumer spending by itself is hardly an indicator of a recession. This can have a domino effect that causes changes throughout the market. This can affect consumer spending: to counteract the more expensive gas fill-up, consumers might spend less elsewhere. For instance, if oil prices go up for gas companies, gas prices usually go up for consumers. However, we can always look to the past for patterns that can help us understand what might be happening right now.įirst, it’s important to understand that, if the general population feels a changing economy in their wallet, it’s likely that the stock market feels these effects even more. Predicting the future is always difficult. They provide research free to the public online, which can help those interested in taking a deep dive into historical economic statistics for the United States. The NBER’s Business Cycle Dating Committee keeps track of peaks and troughs in the economy in an effort to pinpoint economic turning points. Durable goods orders (expensive goods intended to last 3 or more years).These indicators can include (but aren’t limited to): Recession indicators spread across the economy can help us assess whether a recession is taking place. More specifically, the National Bureau of Economic Research (NBER) defines a recession as a significant decline in economic activity that lasts for more than a few months. Considering the poor performance of stock and bond markets to this point in the year, is a recession already upon us? How do you define a recession?Ī recession is a state of the economy defined by slow or negative growth. ![]() As we approach the middle of 2022, many are asking “Are we headed for a recession?”.Ĭonsidering recessions are when most investors incur losses within their portfolios, it is worthwhile to invest a few moments to contemplate the question.Īfter managing investments through a few recessions in the past, I can tell you from experience that the stock market tends to lead the economy both into and out of recessions. ![]()
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