2023-04-19 15:02:00
The chorus of bulls who expect U.S. stocks to weather a recession seems wrong, if history is to guide them.
Optimists see stocks hitting cycle lows in 2022, and say a contraction this year or early next year will only dampen the recovery. Market performance has backed up that view, with the S&P 500 index up more than 8% this year, quickly rebounding from the downturn following the Silicon Valley Bank (SVB) collapse in March.
But a look at all the US recessions since 1929 suggests that the question isn’t if a stock market crash will happen, but when. Not once in the last 100 years or so has the economy avoided hitting a new bottom after entering a period of contraction. Markets bottom out on average nine months into a recession, according to data compiled by Bloomberg News.
S&P 500 Index Never Bottoms Before a Recession
Data going back almost 100 years suggests more downside if economy falters
Source: Bloomberg
“Even a modest recession would justify looking for lows again,” said Marko Kolanovic, a strategist at JPMorgan Chase & Co. That would mean a drop of at least 15%, he wrote in a report dated Oct. 17.
In contrast to the stock market, money markets are signaling recession and the New York Fed’s model of recession probability is rising toward 60%. The consensus forecast is for two more quarters of negative growth, according to data compiled by Bloomberg Intelligence.
“The market has never hit a bottom before a recession hits,” Credit Suisse Group strategists led by Andrew Garthwaite said in a note dated Oct. 18. He sees an 80% chance of a US recession by the first quarter of 2024.
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