Looking last week at S&P drawdowns during recessions, we concluded that the S&P will find a lower floor in the months ahead (i.e. it is highly unlikely 23-Mar was the low), if history is any guide. We reiterate here that the length and size of the max S&P drawdowns in the 14 US recessions since 1929 are highly correlated; i.e. during recessions specifically there is a strong positive relationship between the length of bear markets and the size of the drawdown. This is not necessarily the case in bear markets outside of recessions, which can be more technical.
The S&P has so far dropped -34% peak to trough this year in around one month, a sharp selloff more similar to the technical, non-recessionary ’87 crash than to a bear market coinciding with a recession. Hence, assuming a recession firmly built into consensus, this year’s drawdown would be an extreme outlier if the S&P ends up not falling to new lows.
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David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
