Bear Markets Without Recessions – It’s a thing

Can you have a bear market for stocks without an accompanying recession? It’s not terribly common, but it does occur from time to time. Burt White, Chief Investment Officer at LPL, names three reasons why it’s happened in the past: Policy mistake (raising rates in 1976), financial crisis (Asian currency mess / LTCM blow-up in 2008) or excessive speculation (Crash of 1987).

What’s kind of funny but not so funny is that the bears are alleging all three of these things are occurring right now – policy error by Yellen in raising too soon and Japan for cutting to negative rates, financial crisis in EM countries as a result of it, and excessive speculation in venture capital, FANG stocks and high yield credit.

Here’s Burt White with some history and a great table…


Bear markets can occur without recessions. Going back to 1968, ten bear markets have occurred with six accompanied by recessions [Figure 1]. The accompanying figure shows just how much more painful bear markets are when they are tied to recessions. In the six recessionary bear markets since 1968, the average peak-to-trough S&P 500 decline was a whopping 39%. The thought of such a decline when compared to where we are now, 11.6% below the May 21, 2015 record high, could make your stomach churn.

bear recession

Josh here – the base case I’ve laid out about the current situation – a cyclical bear market driven by oil bankruptcies two years into the secular bull market that began in 2013 – has a precedent. It happened in 1984, although the S&P bottomed out some 14% lower instead of the requisite 20% that marks a typical bear market.

If what we’re experiencing today is anything like that, we’re not quite through the worst of it. Skeptics would point out that the ’84 bear market was arrested in its tracks that summer by a Fed rate cut. Not actually an option this time 🙁


What a Non-Recessionary Bear Might Look Like
LPL – February 9th, 2016


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