A stock market recession is a difficult thing to predict, but the recent volatility is not a sure sign of one. The volatility is more indicative of an untrustworthy stock market. It is not only the world’s behavior that worries investors, but also the recent behavior of the Washington administration. There has been a flurry of uncertainty resulting from the unexpected reversals in tariffs and CEO arrests. In addition, the stock market has been volatile recently due to high leadership turnover in the presidential administration and selection of less qualified, but less experienced people to fill federal positions.
The stock market continues to suffer from a rising inflation rate. Prices of everyday items, like food and commodities, have increased by around 16% worldwide. In addition, the Federal Reserve Chairman Jerome Powell has repeatedly stated his intention to raise interest rates as high as possible. But this policy has not been successful so far. Inflation is also contributing to the decline. One of the main culprits of the global inflation is the war in Ukraine. Russia controls much of the world’s crude supply. The only sectors showing a positive outlook in 2022 are energy companies.
A stock market recession could be the harbinger of a melted economy, according to top economists. Stock prices, however, have been a poor predictor of future events in the past 80 years. Over that period, the U.S. has gone through thirteen recessions, with the average length of each averaging 10 months and a 3.6 percent drop in national income. So, a stock market crash doesn’t necessarily mean the economy is in trouble.
However, the S&P 500 has plunged 20 percent from its peak in mid-February. Inflation has a direct effect on corporate profits, as the S&P 500 has no directional bias. Despite this, the S&P 500 is still heading lower as it is correlated with all other factors, including oil prices. If the market goes down further, that will weigh heavily on consumer sentiment. And, it will be very difficult for consumers to make the right decisions until the economy has recovered fully.
Until the economy rebounds from a recession, we’ll never know how deep it is. While the stock market can’t predict a recession, it does tend to trend downward. Therefore, it’s important to prepare for the downturn by making your resume more polished and sharper. But, remember that a recession is a temporary blip. And, in the long run, it will lead to an increase in the price of stocks.
There are several indicators that may indicate that a stock market recession is on the way. The S&P 500 index, for example, has dropped by nearly 20% this year. This decline has destroyed over nine trillion dollars in household wealth. That’s about fifty percent of the entire U.S. economy in a year. And if it’s going to happen again, it will be the biggest downturn since the dotcom collapse in 2001.