Broker Check

Is a Recession Needed to Tame the Bear?

| July 06, 2022

There’s a “hurricane” coming for the US economy. Headlines from titans like Jamie Dimon, JPMorgan Chase CEO, have fueled predictions about the next recession. This has clearly spooked investors, who are left wondering how to shield themselves from the challenges that may lie ahead. If another recession is looming, will the markets not recover until the recession has ended? While it’s impossible to predict what is going to happen next, we can learn from history. Let’s take a look at the differences between a bear market and a recession, and how stocks have performed during a recession.

A simple definition of a recession is two consecutive quarters of negative Gross Domestic Product (GDP)i growth. While this does not meet the full scope of a recession, as defined by the National Bureau of Economic Research (NBER), it does provide a guideline. To date, we have only seen a single quarter of negative growth in 2022, so technically a recession has not yet started. Economic statistics are backward-looking, so it will take some time before the NBER declares the economy in an official recession.

A bear market, on the other hand, is associated with the stock market and is defined as a 20% decline in prices from its last peak. The stock market tends to be forward-looking and often starts going down before the economy turns south and similarly starts turning back up before the recession ends. This is evident by looking at the S&P 500 performance from market highs to lows from the start to the end of a recession.

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