The odds that the economy was in a recession in Q4 2018 are zero. (Zilch. Nada.) However, at least in market lore, one of the hallmarks of bear markets is they are often associated with a recession.
To what degree? From the 11 previous bear markets we identified on the S&P 500, 7 of the 11 either preceded or followed a recession.
In this post we'll look at previous S&P 500 bear markets and examine the relationship between bear markets and recessions.
Recessions and Bear Markets in the S&P 500
For all bear markets on the S&P 500 since January 1950 (except the current) we went back and noted some characteristics of the bear and the economy.
| Bear Market Start | Recession | Rec. Start | Rec. End | Rec. Length | Max Drawdown |
| 10/21/57 | TRUE | 09/01/57 | 05/01/58 | 241 | -21.47% |
| 05/28/62 | FALSE | - | - | - | -29.31% |
| 08/29/66 | FALSE | - | - | - | -23.69% |
| 01/26/70 | TRUE | 01/01/70 | 12/01/70 | 333 | -37.27% |
| 11/26/73 | TRUE | 12/01/73 | 04/01/75 | 485 | -49.93% |
| 09/25/81 | TRUE | 08/01/81 | 12/01/82 | 486 | -28.01% |
| 10/19/87 | FALSE | - | - | - | -35.94% |
| 10/11/90 | TRUE | 08/01/90 | 04/01/91 | 242 | -20.36% |
| 09/01/98 | FALSE | - | - | - | -22.45% |
| 02/22/01 | TRUE | 04/01/01 | 12/01/01 | 243 | -50.50% |
| 07/01/08 | TRUE | 01/01/08 | 07/01/09 | 546 | -57.69% |
So in 7 out of 11 – 63.6% of S&P 500 Bear Markets – the bear preceded or followed a recession.
In 1957, 1970, 1981, 1990, and 2008 the economy was in a recession before we confirmed a S&P 500 bear market. In 1973 and 2001, interestingly, we were in a bear market on the S&P 500 before a recession started.
Gap Between Recession and Bear Market
An important thing to note about recessions is they are only declared after the fact. Using the NBER's post-dating methodology, recessions begin when there is an economic activity inflection at the top... and end at the economy's trough.
With that framework in mind, we took a look at the gap between bear market starts and recessions for the recession bears. Note that, of course, we don't know if the US will enter a recession soon. We'd need to revisit this work from some future vantage point to complete this economic history.
| Bear Market Start | Recession Start | Days Between |
| 10/21/57 | 09/01/57 | -50 |
| 01/26/70 | 01/01/70 | -25 |
| 11/26/73 | 12/01/73 | 5 |
| 09/25/81 | 08/01/81 | -55 |
| 10/11/90 | 08/01/90 | -71 |
| 02/22/01 | 04/01/01 | 38 |
| 07/01/08 | 01/01/08 | -182 |
'Days Between' is the calendar difference in days between the start of a bear market and the start of a recession. As you'd expect, negative numbers mean the recession started before a bear. Positive numbers are the two holdouts – 1973 and 2001 – where the bear preceded a recession.
Recessions and Bear Markets Relationship on the S&P 500
There are some interesting takeaways from this research.
In the post-WW2 era, roughly 2/3 of bear markets are associated with a recession. Usually a bear market is entered after a recession, however in a couple cases the recession came later. If your prior is 1998, the recession started about a month and a half after the bear market which would put it in February 2019... again, if you're into that comparison.
Four times since WW2, the S&P 500 was in a bear market without a corresponding recession. The worst of those bears was in 1987, where the S&P 500 declined 35.94% peak to trough. That bear was also quite a long one - we went 700 calendar days between new all time highs in the S&P 500.
Even with the monster day in the S&P 500 today (+4.96%!) we're still in a bear until we confirm a new high. See more about bear markets in the S&P 500 in our previous post.
