Friday 6 January 2023

The three bears scenario: how the bear market plays out if a recession occurs in 2022, 2023 or not at all.

In its “three bears” scenario, NDR lays out possibilities for how the bear market plays out if a recession occurs this year, next year, or not at all.

1.  If a recession occurs sometime in the second half of 2022, the stock market could drop another 10% or more. Bear markets that coincide with recessions tend to decline nearly 35% on average and last for 15.3 months. If this were to be the case, the sooner it would start, the sooner it would be over given that a bear market bottoms four months before a recession, setting the stage for a “shorter than average” recessionary bear market.

2.  If a recession occurs in 2023 that would make the current bear market twice as long as average, and likely lead to numerous bear-market rallies that eventually fail as they have in past instances. Clissold cites 1973, 1978, and 2000 as past bear markets that saw numerous rallies between their start and finish with a maximum gain of 15.9%, 14.3%, and 15.5%, respectively.

3.  The last and best scenario is if there is no recession at all. Stocks decline on average by 25% in a non-recessionary bear market over 9.1 months. In the past 50 years, the average decline has been 18% over 6.8 months.

If the Fed can achieve the delicate balance of taming inflation by slowing the economy without tipping the country into a recession, Clissold says, “the cyclical bear is likely close to being over.


NDR = Ned Davis Research, an independent provider of global investment research based in Nokomis, Florida


How Do You Tell a Bear-Market Rally in Stocks From a New Bull Run? | Morningstar

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