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|
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|
‘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.