Could the Stock Market Power Through a Recession? Historical Data Shows It’s Rare, But Possible

The possibility of a recession in the United States is causing concern among investors, particularly as historical data shows that the stock market does not perform well during economic downturns. RBC Capital Markets strategist Lori Calvasina recently conducted research showing that going back to the Great Depression in 1937, the S&P 500 has sold off in a range of 14% to 57% peak-to-trough during periods of recession, with the average recessionary drop on the S&P 500 being 32%. Calvasina’s research also found that the stock market usually bottoms out four to five months before the end of a recession, but in some cases, such as in the 2001 recession, it bottomed out 10 months later.

According to experts, recent collapses of banks such as Credit Suisse, Signature Bank, and Silicon Valley Bank have caused financial conditions to tighten, and have forced economists to readjust their economic thinking. Adding to the concern is the Federal Reserve’s hawkish stance on interest rates, which has led to some economists predicting a recession this year, and Goldman Sachs forecasting a 35% chance of a recession in the US in the next 12 months.

Recent economic data has also added to concerns about a potential recession. The latest retail sales report was underwhelming for the second straight month, and consumer confidence has weakened as inflation fears have ticked back up. Research Affiliates CEO Chris Brightman said, “What we are seeing with elevated inflation, rising interest rates, and cracks appearing in the financial system is the sort of environment that makes a crash in the stock market much more likely than normal.”

Investors are now on high alert, with the historical data of previous recessions and current economic conditions suggesting that a potential market drop is looming. While it is too early to say for certain whether the US will enter a recession in 2023-2024, investors should pay attention to economic indicators and remain cautious with their investment decisions.


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