Informed opinions about a potential recession in the U.S. are all over the place right now, but this one is pretty clear: The stock market, historically, does not like recessions.
"Time will tell whether the stock market can look past any recession that occurs in 2023-2024 as the U.S. economy completes its transition into the post-COVID era," RBC Capital Markets strategist Lori Calvasina wrote in a note to clients. "It’s worth keeping in mind that while this would be rare, it wouldn’t be entirely unprecedented."
Going back to 1937 — the Great Depression period for the U.S. economy — the S&P 500 (^GSPC) has sold off in a range of 14% to 57% peak-to-trough during periods of recession, per new data crunched by Calvasina. The average recessionary drop on the S&P 500 has tallied 32%.
There have been 13 official recessions dating back to 1937, according to Calvasina's research. The average length of the drawdown period for the S&P 500 around these recessions has been 381 days.
Typically, the stock market bottoms four to five months before a recession ends, but RBC's research details that it has bottomed as early as nine months before the end of a recession. There is one exception: the 2001 recession, in which the stock market bottomed 10 months later.
Historical number crunching such as that done by Calvasina and her team has come back to the fore for investors for a host of reasons.
Economists have begun to readjust their economic thinking after the collapses of Credit Suisse, Signature Bank, and Silicon Valley Bank in March, which experts suggest have collectively caused financial conditions to tighten.
Not helping the economic outlook is a Federal Reserve that has dealt the economy a blow from a series of interest rate hikes dating back to early 2022. And the central bank looks poised to continue such a hawkish stance at least until the May FOMC meeting.
"Given the pace of rate increases, we do see some slowing in the economy happening," Wells Fargo CFO Mike Santomassimo told Yahoo Finance.
As it stands, Jefferies economists are still predicting a recession this year. Goldman Sachs sees a 35% chance of a recession in the U.S. in the next twelve months.
Meanwhile, recent economic data has hardly been inspiring and is only feeding renewed recession worries.
The latest retail sales report was underwhelming for the second straight month. Sales were pressured across the board, specifically among higher-priced items like appliances.
Consumer confidence has also weakened as inflation fears have ticked back up.
All of these factors are putting some investors back on high alert for a recession and potential market drop around where Calvasina's historical data shows.
"I think the environment we are in today, what we are seeing with elevated inflation, rising interest rates and cracks appearing in the financial system are the sort of environment that make a crash in the stock market much more likely than normal," Research Affiliates CEO Chris Brightman warned on Yahoo Finance Live.