Are Stocks Warning About A Coming Recession?

March 10, 2020

Market Blog

In just 13 trading days, the S&P 500 Index pulled back nearly 19% from its recent all-time highs, making this the fastest such move in stock market history. We all know why this happened, as concerns over COVID-19 (coronavirus) and potential economic fallout continue to grip investors around the globe.

The big question now is: Will a potential bear market in stocks usher in a recession? After all, stocks tend to lead the economy both into and out of recessions. “History tells us that the worst bear markets have taken place during a recession,” said LPL Financial Senior Market Strategist Ryan Detrick. “Now the good news is not all bear markets occur in recessions; in fact, when the economy has avoided recession, stocks have bottomed right around down 20% over the past several bear markets.”

As shown in the LPL Chart of the Day, stocks have dropped 37% on average in bear markets during a recession, while they have lost 24% if a recession is avoided. Additionally, five of the past six non-recessionary bear markets saw stocks bottom between 19% and 22% lower, with December 2018 being the most recent case. The only time stocks saw a larger decline without a recession was in 1987, but don’t forget that stocks were historically stretched heading into that bear market, with the S&P 500 up more than 40% year to date in August 1987.

So, does LPL Research see a recession coming in 2020? Although the odds have increased significantly over the past two weeks, at this time we do not see a recession in the United States. We acknowledge the uncertainty, but at this point in time we expect economic growth to accelerate during the second half of this year as the coronavirus is contained.

For more on our immediate thoughts on the coronavirus and economy, please listen to the latest LPL Market Signals podcast here.


This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.

References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

This Research material was prepared by LPL Financial, LLC.

Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC).

Insurance products are offered through LPL or its licensed affiliates.  To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL affiliate, please note LPL makes no representation with respect to such entity.

If your representative is located at a bank or credit union, please note that the bank/credit union is not registered as a broker-dealer or investment advisor.  Registered representatives of LPL may also be employees of the bank/credit union.

These products and services are being offered through LPL or its affiliates, which are separate entities from, and not affiliates of, the bank/credit union.  Securities and insurance offered through LPL or its affiliates are:

  • Not Insured by FDIC/NCUA or Any Other Government Agency
  • Not Bank/Credit Union Guaranteed
  • Not Bank/Credit Union Deposits or Obligations
  • May Lose Value

For Public Use – Tracking 1-962865