This chapter is from the book
This chapter is from the book
This chapter is from the book
Recession Bear Markets
Although it is sometimes difficult to separate the two, recessions and bear markets are not the same. It is possible (and it has happened) for there to be a bear market during good economic times and a bear market during a recession. It may be helpful to remember that the economy and the stock market are two faces of the same phenomenon. The difference is that the economy is looking backward to see how it did and the stock market is looking forward to see how it will do. These different perspectives account for why the economy may view one statistic as positive while the stock market may view the same statistic as negative.
I have used the example of unemployment figures before, but it's worth repeating. The economy views low unemployment figures as good because more people are working and contributing to the economy. For some companies, this may be a double-edged sword. It's good that consumers have more money to spend, but low unemployment means stronger competition for labor, which means high salaries and ultimately lower profits if the extra costs can't be passed on to customers. The company may lower future earnings estimates, which is sure to disappoint the market.
The intertwining of the economy and the stock market make them siblings, even though they may look in different directions. If the economy goes south, it can't be good for the market. A bear market spreads gloom and distrust, which erodes consumer confidence.