Recession Can Hit Without Causing a Bear Market

Ben Levisohn Markets Philipp Carlsson-Szlezak Economic News Equity Markets Commodity/Financial Market News Content Types Factiva Filters C&E Exclusion Filter N/DJN N/GENI N/IEN N/MKT N/STK N/WER Barrons.com Barrons Blogs Wires DJIA Dow Jones Industrial Average S&P 500 SPX CODES_REVIEWED Markets author Ben Levisohn author|Ben Levisohn topicid 8022 name Ben Levisohn extractedtext Ben Levisohn rank 1 codetype author code ben_levisohn nameformat surname_first author Ben Levisohn id Ben Levisohn barrons_display_subject BARMKTS barrons_display_subject|BARMKTS codetype BARRONS_DISPLAY_SUBJECT canbedisplaysubject true value BARMKTS source MANUAL status modified name Markets code BARMKTS djn N/GENI djn|N/GENI significance prominent onlinesignificance prominent name N/GENI why about source FACTIVA fcode N/GENI codetype djn code n_geni djn N/IEN djn|N/IEN significance prominent onlinesignificance prominent name N/IEN why about source FACTIVA fcode N/IEN codetype djn code n_ien djn N/STK djn|N/STK significance prominent onlinesignificance prominent name N/STK why about source FACTIVA fcode N/STK codetype djn code n_stk djn N/MKT djn|N/MKT significance prominent onlinesignificance prominent name N/MKT why about source FACTIVA fcode N/MKT codetype djn code n_mkt djn N/DJN djn|N/DJN codetype djn value N/DJN source DJN-CONTROL status modified inactivebydefault true name N/DJN code n_djn djn N/WER djn|N/WER codetype djn value N/WER source DJN-CONTROL status modified inactivebydefault true name N/WER code n_wer first_publish_headline A Recession Can Cause a Bear Market, but Stocks Don’t Need One to Get Hit — Hard first_publish_headline|A Recession Can Cause a Bear Market, but Stocks Don’t Need One to Get Hit — Hard flow NWREGULAR flow|NWREGULAR codetype FLOW value NWREGULAR source MANUAL status modified name Wires code NWREGULAR flow Barrons.com flow|Barrons.com codetype FLOW value Barrons.com source MANUAL status modified name Barrons.com code online name Online title Product code Barrons.com flow Barrons Blogs flow|Barrons Blogs codetype FLOW value Barrons Blogs title Product source MANUAL status modified name Barrons Blogs code Barrons_Blogs headline A Recession Can Cause a Bear Market, but Stocks Don’t Need One to Get Hit — Hard headline|A Recession Can Cause a Bear Market, but Stocks Don’t Need One to Get Hit — Hard id facebook id|facebook news_tab_url https://www.barrons.com/articles/recessions-can-cause-bear-markets-but-stocks-can-tumble-without-one-51571853712 index Dow Jones Industrial Average index|Dow Jones Industrial Average name Dow Jones Industrial Average displayname Dow Jones Industrial Average symbol DJIA chartingsymbol INDEX/US/DOW JONES GLOBAL/DJIA exchange Dow Jones Global exchangeisocode DOW JONES GLOBAL country US onlinesignificance prominent significance prominent codetype index source MANUAL status modified extractedtext Dow Jones Industrial Average code djia index S&P 500 index|S&P 500 name S&P 500 displayname S&P 500 Index symbol SPX chartingsymbol INDEX/US/S&P US/SPX exchange S&P US exchangeisocode S&P US country US onlinesignificance prominent significance prominent codetype index source MANUAL status modified extractedtext S&P 500 code spx index DJIA index|DJIA name DJIA source EXPANDER value DJIA codetype INDEX code djia name Dow Jones Industrial Average background-info BRIEFING-BOOK significance PROMINENT index SPX index|SPX name SPX source EXPANDER value SPX codetype INDEX code spx name S&P 500 background-info BRIEFING-BOOK significance PROMINENT inset inset-1 inset|inset-1 responsive layout inline media media-2 media|media-2 responsive layout wrap softcrop Horizontal imphotoid im-75722 location https://images.barrons.com/im-75722/?size=1.5 media media-1 media|media-1 softcrop Horizontal imphotoid im-75722 location https://images.barrons.com/im-75722/?size=1.5 ns ecat ns|ecat significance prominent onlinesignificance prominent name Economic News why about source FACTIVA fcode ecat codetype ns code ecat ns m11 ns|m11 significance prominent onlinesignificance prominent name Equity Markets why about source FACTIVA fcode m11 codetype ns code m11 ns mcat ns|mcat significance prominent onlinesignificance prominent name Commodity/Financial Market News why about source FACTIVA fcode mcat codetype ns code mcat ns ncat ns|ncat name Content Types why lineage source FACTIVA internalsymbol true fcode ncat codetype ns code ncat ns nfact ns|nfact name Factiva Filters why lineage source FACTIVA internalsymbol true fcode nfact codetype ns code nfact ns nfce ns|nfce name C&E Exclusion Filter why lineage source FACTIVA internalsymbol true fcode nfce codetype ns code nfce nwchain SB513748850324963333557045856290713017115941 nwchain|SB513748850324963333557045856290713017115941 pe Philipp Carlsson-Szlezak pe|Philipp Carlsson-Szlezak firstname Philipp lastname Carlsson-Szlezak displayname Carlsson-Szlezak, Philipp name Philipp Carlsson-Szlezak extractedtext Philipp Carlsson-Szlezak source FACTIVA codetype pe code philipp_carlsson_szlezak nameformat surname_first relay SYND relay|SYND name Syndication source EXPANDER value SYND codetype RELAY code synd status modified statistic CODES_REVIEWED statistic|CODES_REVIEWED name CODES_REVIEWED value CODES_REVIEWED codetype STATISTIC code CODES_REVIEWED subject BARMKTS subject|BARMKTS ruleid BARMKTS codetype SUBJECT value BARMKTS selectable true canbedisplaysubject true name Markets title Markets status modified code BARMKTS wordcount 425 wordcount|425 Photograph by Francesco De Tommaso A Recession Can Cause a Bear Market, but Stocks Don’t Need One to Get Hit — Hard A Recession Can Cause a Bear Market, but Stocks Don’t Need One to Get Hit — Hard Recessions Can Cause Bear Markets, but Stocks Can Tumble Without One

We’re all familiar with the recessionary bear market. But a bear market didn’t occur in 1990, when a minor recession hit the U.S. economy.

Recession Can Hit Without Causing a Bear Market

We’re all familiar with the recessionary bear market. But a bear market didn’t occur in 1990, when a minor recession hit the U.S. economy, while one certainly did happen without a recession in 1987.

https://www.barrons.com/articles/when-the-stock-market-is-this-crazy-you-should-just-invest-lazy-51567213413 https://www.barrons.com/articles/dow-jones-industrial-average-bear-market-forecast-51560541166 https://www.barrons.com/articles/the-next-recession-wont-be-as-bad-guggenheim-says-but-theres-a-catch-51555007518 https://www.barrons.com/articles/black-monday-2-the-next-machine-driven-meltdown-1507956435 https://www.barrons.com/articles/housing-and-manufacturing-data-taken-together-flash-a-warning-signal-51571648401 https://asset.barrons.com/dynamic-insets/charts/cdc_36a0ee8e8be96da98f2fd3c0.json https://www.barrons.com/articles/whats-the-difference-between-a-correction-and-a-bear-market-51553715750 A Recession Can Cause a Bear Market, but Stocks Don’t Need One to Get Hit — Hard By Ben Levisohn Photograph by Francesco De Tommaso

A recession is the only thing that can cause a bear market, right? Not quite.

Yes, we hear all the time that a recession is the only thing that can cause a bear market, but that’s not true. Bernstein’s Philipp Carlsson-Szlezak notes that bear markets and recessions usually go together, but not always. In fact, one-third of bear markets occur without a recession. Perhaps even more surprising: One-third of recessions don’t cause bear markets.

We’re all familiar with the recessionary bear market—think 2001 or 2008. The market falls, the recession arrives, and the stock market stinks for a while. But a bear market didn’t occur in 1990, when a minor recession hit the U.S. economy, while one certainly did happen without a recession in 1987.

So what’s most likely for the current market? Unfortunately not a recession without a bear market. Carlsson-Szlezak notes that what made such a feat possible in 1990 was the stock market’s relatively low valuation coming out of the 1980s, and the fact that the recession was very mild. “This scenario is less likely today—not only because valuations are higher, but also because of the extremes of modern volatility patterns points to the latter example, a bear market without a recession,” he writes.

He points to December 2018 as an example of just that “modern volatility regime,” where calm can turn to storm in an instant. “That adds to the probability of the next recession to play out in bear territory,” Carlsson-Szlezak writes. “However, non-recessionary bear markets are structurally more likely today, again driven by the modern volatility regime.”

https://asset.barrons.com/dynamic-insets/charts/cdc_36a0ee8e8be96da98f2fd3c0.json

The drop in 2018 wasn’t quite a bear market—the S&P 500 fell 19.8%, while the Dow Jones Industrial Average dropped 19.6%, just missing the 20% threshold for a bear—but it sure was painful.

How soon until we get another one?

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.