Correlation ?: How has a US recession affected a bear market in the past | news

Recent price hikes with no lasting effects
A recession follows a market that falls by an average of 43%.
The current P / E ratio is 50% in the event of a recession

The stock market is currently in bear market mode for the ninth time since 1990. Statistically, only every second Brenmarkt has been followed by a recession in the United States.

In the past, it took an average of 14 months for the stock market to recover sustainably, calculates Charlie Bilello of Compound Advisors. As a result, the bear market could last until August 2023, as the S&P 500 only surpassed the 20% loss in June 2022.

It can be assumed that the Brenmarkt will last for months rather than weeks. However, every bear market is different, wealth manager Peter Hoppe points out and refers to the bear market of 2020, when the pandemic brought panic to the stock market. In hindsight, it was the shortest bear market on record, with a duration of just 27 days, although it was not predictable at the time.

In the past, the MSCI World All Countries lost an average of 43% as a bear market turned into a recession. In the past, when the stock market did not lead to a recession in the United States, the index lost an average of 21 percentage points.

Fund or recession?

The price-to-earnings (P / E) ratio fell to an average of 13.3 during Brenmarkt periods, which is a drop of at least 20 percent below the latest peak, while during periods of actual economic downturn dropped to 15.5. From this it can be concluded that with a current P / E ratio of 14.4 and a price drop of 21 percent, the market has already priced a 50 percent recession by historical comparison, Dirk Steffen said on June 21. in the Deutsche Bank newsletter “Morning Perspectives”. “It has not yet been decided whether there will actually be a recession in the near future. The stock market fluctuations will definitely stay with us,” says the capital market strategist.

In his fundamental analysis “Corona Crash vs. Brenmarkt” of 23.06. Sven Weisenhaus writes that the DAX also shows no sustained strength in the recent price rally. He therefore continues to doubt a low or even a trend reversal and continues to view the chart in a bearish fashion. The expert evaluates the development of the EURO STOXX 50 in a similar way.

Declining valuation levels

The DAX rating reduction – even compared to the S&P 500 – is well advanced and has reached a “normal” rating level. An analysis by Helaba, in which the price / cash flow ratio (KCV) and the price / book value (PBV) are considered in addition to the PER, shows that the DAX is already in the lower normal range, while the large l index has just reached the upper normal range.

The current correction lasted more than six months, while non-recessive markets in the US lasted an average of six months. According to Helaba experts, the risk / reward ratio is now attractive as the US stock market has already lost 24 percent since January. If the economy slides into recession, statistically speaking, this would be accompanied by further losses, averaging 38 percent, and spanning a 20-month period.

How can a trend reversal be achieved?

In a report, analysts at Goldman Sachs speculate that 2022 will be a cyclical market characterized by high inflation and rising interest rates. Stocks would have rationalization monetary policy already listed On average, such a bear market lasts two years and records a 31 percent drop in prices, so the current bear market is very close to historical averages. However, the duration is estimated to be shorter, CNBC cites from the report.

However, inflation must first decrease to allow for lower valuations, growth prospects and monetary easing. In the past, a turnaround could typically have been achieved by lowering interest rate expectations. “Only when the news situation changes positively again can the mood on the stock exchange change,” wealth manager Peter Hoppe told Die Welt. So falling interest rates and a turnaround in oil prices could lead to a near-term recovery or an end to the bear market. editorial staff

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