US Stock Bulls Ignore 100 Years of Recessions at Their Peril

Jan-Patrick Barnert, Bloomberg News

, Source: Bloomberg

(Bloomberg) -- The chorus of stock bulls predicting US equities will weather a recession has got it wrong, if history is any guide.

Optimists say stocks hit this cycle’s low in 2022 and an economic contraction this year or in early 2024 would only dent the rebound. The market backs them up: The S&P 500 Index has gained more than 8% so far this year, quickly reversing the slump after Silicon Vally Bank’s failure in March.

But a look at every US recession since 1929 suggests it’s a question of when, not if, the stock market takes a tumble. On no occasion in almost 100 years did equities avoid falling to a new trough after the economy entered a contraction. Markets only found a bottom nine months after a recession began, on average, data compiled by Bloomberg News show.

“Even a mild recession would warrant retesting the previous lows,” according to JPMorgan Chase & Co. strategist Marko Kolanovic. That means a drop of at least 15%, he wrote in a note dated April 17.

In contrast to the stock market, rates traders are flashing recession signals and the NY Fed’s probability model for a downturn has risen toward 60%. The consensus forecast is for two quarters of negative growth, data compiled by Bloomberg Intelligence show.

“We have never seen markets trough before the start of a recession,” Credit Suisse Group AG strategists, including Andrew Garthwaite, wrote in a note dated April 18. They put the probability of a US recession by the first quarter of 2024 at 80%.