Different Strings … Similar Story

Much attention has been paid to the elevated risk (and announcement) of a recession, but investors should instead focus on signals coming from leading economic indicators.

Before any analysis specific to the current economic and/or stock market cycle, it's important to look at the history of cycles. We recently put together the graphic below that shows every recession (orange bars) and equity bear market (blue bars) in the post-WWII era. The individual boxes represent monthly increments; and the date range to the left represents the entire cycle, from either the beginning of the bear market or the beginning of the recession, to the final completing of the cycle.

As you can see, recessions and bear markets don't always overlap. There were four recessions—1945, 1953-54, 1960-61, and 1980-81—that did not have an overlapping bear market (although there was one in short order in 1981). There were also four bear markets that did not overlap with recessions—1946-47, late 1961-62, 1966 and 1987.

Recessions and bears

The average lag between recessions' starts and the NBER announcement is seven months; and the average lag between recessions' ends and the NBER announcement is 15 months.

Source: Charles Schwab, Bloomberg, National Bureau of Economic Research (NBER), as of 10/17/2022.