🟨 Recession = More Volatility

2022年12月16日

WHAT IS IT
Modelling previous moves of the S&P500 Recession & Non-recession moves, we can create a model for 2 scenarios:
Non-recession Bull *Cyan*
Recession Bear *Orange*

HOW TO USE IT
Bear markets have never ended before the start of recessions, so a recession would likely mean new lows in the market indexes. The stock market tends to lead the economy out of a recession, too, by an average of four months. Absent a financial crisis, the recession should be shorter than recent cases. The orange line in the chart below shows the average performance of the S&P 500 nine months before the end of a recession bear to three months after, which would align with a 9/30/2023 recession end date.

The average recession bear decline is 34.6%, but a milder recession could equate to a smaller-than-average drop. To date, the 2022 decline is in line with the average non-recession bear. The market took the Fed’s threat to push the economy into recession seriously, so for now, the policy mistake scenario is in play.