US Economy affects Market or vice versa? Read & decide.
In my previous post (see below), I have concluded (for now) that US is not in recession.
US heads into recession? Read & decide. - click to read. Help “re-post” ok. Thanks.
However, there was insufficient real estate to draw parallelism (if any) between a US recession and the US stock market.
And with that, the post continues….
5 stages of a Recession Cycle
What Is A Recession?
A recession is a significant, pervasive, & persistent decline in economic activity.
Economists measure a recession’s length from the prior expansion’s peak to the downturn’s trough.
The most widely accepted definition of a recession is two consecutive quarters of declining GDP.
However, the National Bureau of Economic Research (NBER), has a slightly different take.
Its’s definition is, “a significant decline in economic activity that is spread across the economy and that lasts more than a few months”.
Year 2020 - US Latest Recession.
The most recent US recession happened a mere 3 years ago, in 2020.
Dubbed the “Covid-19 Recession”, it was the “shortest” in US recession histories. (see below)
US economy experienced a sharp contraction in 2020 due to [a] the COVID-19 pandemic and [b] the associated lockdowns and [3] restrictions.
Based on the US Bureau of Economic Analysis (BEA), the real gross domestic product (GDP) declined by -1.5% from 2019 to 2020, the largest annual drop since 1946. (see above)
In Q2 2020, the GDP fallout was at its worst, at an annual rate of -31.4%, the most severe quarterly decline on record.
In H2 2020, the US economy showed signs of recovery, as some of the lockdown measures were eased and fiscal and monetary stimulus measures were implemented.
In Q3 2020, the GDP rebounded at an annual rate of +33.4%, the highest quarterly growth on record.
In Q4 2020, the GDP continued to grow at an annual rate of +4.0%, reflecting increases in [a] exports, [b] non-residential [3] fixed investment, [4] personal consumption expenditures, [5] residential fixed investment, and [6] private inventory investment.
In total, US GDP reached $21.06 Trillion in 2020, a decrease of -1.50% from 2019.
Using its basket of financial instruments, the Fed managed to prop up the US economy, eliminating the dreaded recession.
In exchange, the US economy faces a persistent inflation that is still on-going, as we count down towards end October 2023.
S&P 500 - February 2020 to June 2020
Above chart gives a sense of the US market during Covid-19 Recession, correspondingly.
The $S&P 500(.SPX)$ is the referenced composite index.
On 19 Feb 2020, it peaked at 3,386.15.
On 23 Mar 2020, it troughed at 2,237.4.
Between the two extremes, the S&P 500 index had fallen by -33.92%.
On 31 Jan 2020, it closed at 3,225.52.
Post Covid-19 recession, the next time S&P 500 had similar closing of 3,225.52 was achieved on 08 Jun 2023 at 3,232.39.
All in all, it took 129 trading days, after the end of the recession (30 Apr) for the to recover to its pre-recession level.
My Viewpoints:
There is a correlation between the US economy and the S&P 500 US market performances.
The stock market is often regarded as a lead indicator of the US economy.
It also reflects investors’ expectations of future economic growth.
Unfortunately, the relationship between the two is not always straightforward and 1-for-1.
It could be influenced by many factors.
For example, [a] interest rates, [b] inflation, and [c] geopolitical events, just to name a few factors.
Quite certain that if similar charting is performed on either [a] $DJIA(.DJI)$ or [b] $NASDAQ(.IXIC)$, overall movement of ups & downs should be in tandem; the only difference is the extent of the rise or dip.
Do you think it is the US economy extending influencing over the US market?
Do you think it is the US market exerting influence on the US economy?
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Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.
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Still .......Dead Money for Investors., since Dec. 2021...........now just play the scalps. In-out-in-out-in-out.
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Flight to safety accelerating ! Treasuries getting a bid, gold up, U$D very strong ! Markets on the verge of "imploding" !
Not giving up easily.. puts might not pay
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