Risk of Recession Quite High with Bear Market With the bear market there is a high risk of recession striking. While analysts and investors discuss this, let’s take a closer look at the probabilities.
The fear factor is pretty high in the markets now and that can affect your perspective if you are about to start online trading, despite the presence of features such as commission free trading offered by online broker dealers. The fear of the dreaded term “recession” is running high with many analysts predicting recession to hit, simply because only twice in history has a 20% plunge in stocks not been followed by a recession. Now that the stocks have sunk so much, it is likely that a recession could strike, analysts say. In fact, there were 13 times in its 93-year history that the S&P 500 completed the 20% plunge. Only twice in those 13 occasions did the American economy escape from a recession – 1966 and 1987. A
www.tradezero.co
+1.954.944.3885
further point in favor of this theory is that in only 3 of the 14 recessions that happened during this period did a bear market not accompany. The Amazing Bull Run of the S&P 500 Ends The S&P 500 was enjoying a record bull run, but all that ended on Thursday, March 12, 2020. Stocks sank 9.5%, and it was the greatest trouncing since Black Monday of 1987. There were increasing doubts about whether the government’s policy changes would do enough to help alleviate the issues with the economy, with travel, sporting events and public gatherings all halted. Industrial production facilities in affected countries including the United States have been adversely hit and the virus spread is continuing, increasing the potential for further economic damage. The Stock Market and the Economy It’s been often said that the stock market can’t be taken for the economy. But that concept loses its relevance when unexpected events such as a global pandemic strike that has so much force to hit the market hard. Consumer psychology has also been affected significantly as stocks keep losing their value. And what goes on in the market can be a sign of things to come in the country’s economy. Apart from the coronavirus pandemic, there has also been the oil-price shock. These factors have made the markets extremely volatile. Such volatility hasn’t been seen since the days of the financial crisis. And, according to Bloomberg Economics, there is a 52% chance of a recession happening the next year. That’s the highest percentage since 2009. High Probability of Recession, Though Not Everyone Agrees According to J P Morgan, across all assets, financial markets have factored in a recession probability of 80%. And the Cboe Volatility Index (VIX) has also risen to its highest level since 2008. However, Steve Mnuchin estimates that the US economy isn’t heading for a recession. He believes that there will just be a slowdown.
www.tradezero.co
+1.954.944.3885