Here is a good chart from Deutsche Bank that highlights several actual recessions and several times where a decession looked likely and how far the SP 500 fell in those situations.
Looking at it, the market has fallen far enough already to indicate the market is concerned about a recession but if we were to actually get a recession, it could fall much further below the April lows. I'd highlight additional downside even in a shallow recession as valuations are high coming in.
Deutsche Bank writes:
"The hard data over the coming days will be crucial. Investors have been reluctant to fully price in a recession because we don't have enough evidence that one is likely. But if that changes and we start to see contractionary numbers (e.g. a negative payrolls print), that would lead to a fresh reassessment that could open the way for a fresh selloff. That risk is particularly acute precisely because markets haven't witnessed a recession-like selloff so far. So history clearly demonstrates that if we did get an actual recession, then there's still a lot of scope for risk assets to see further downside."They also looked at high-yield credit spreads, the yield curve and oil prices all paint the same picture. The one that worries me the most is high-yield spreads as some people have made the case to me that those could blow out. The chart below is good because it doesn't show serious risk but if it does blow out, there is a long way to go and those borrowing costs could lead to some real pain.
This article was written by Adam Button at www.forexlive.com. Read More Details
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