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Home / Futures Blog / The Difference Between Bear Markets and Recessions

The Difference Between Bear Markets and Recessions

December 20, 2018 by Craig Turner

I talk to a lot of traders and I’ve noticed many use the words “bear market” and “recession” interchangeably.  Most economic recessions cause bear markets in equities, but a bear market doesn’t have to lead to a recession.  In 1987 the market crashed more then 20% but was not followed by a recession.  That could happen again in 2019 but first lets look at what exactly are bear markets and recessions.

Bear Market | A decline in the stock market by 20% or more is a bear market.  Anything less than 20% is just a correction.

Recession | Two consecutive quarters of negative economic growth (GDP).

Bear Market without a Recession Example

Take a look at the chart below.  The S&P 500 is not far off from being down 20% and in a bear market.  If the S&P does fall below 2360 the stock market will be in a bear market but GDP growth was 4.2% in the second quarter and 3.5% in the third quarter.  Most economists have forecast 2019 GDP growth around 2.5% to 2.0%.  While this is a slow down in growth it is still positive growth.  It is very possible for the stock market to fall below 2360 (bear market) while the US economy is still growing (not a recession).

The stock market has been charging higher during periods of very strong GDP growth rates.  Now that the US economic growth rate is coming back to the norm, stocks are selling off.  One can make the argument that stocks went too far, too fast, and now we are seeing the consequences.  When markets run up too high, they tend to come down too low also.  In these types of situations you can have a temporary bear market in the stock market and not be in recession.  Of the past 10 bear markets in the US stock market, only about half resulted in a recession.

Emini S&P 500

Emini S&P 500 Bearish Territory

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Craig Turner – Commodity Futures Broker
Turner’s Take Ag Marketing: https://www.turnerstakeag.com
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Risk Disclosure

This material is conveyed as a solicitation for entering into a derivatives transaction.

This material has been prepared by a Daniels Trading broker who provides research market commentary and trade recommendations as part of his or her solicitation for accounts and solicitation for trades; however, Daniels Trading does not maintain a research department as defined in CFTC Rule 1.71. Daniels Trading, its principals, brokers and employees may trade in derivatives for their own accounts or for the accounts of others. Due to various factors (such as risk tolerance, margin requirements, trading objectives, short term vs. long term strategies, technical vs. fundamental market analysis, and other factors) such trading may result in the initiation or liquidation of positions that are different from or contrary to the opinions and recommendations contained therein.

Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.

Trade recommendations and profit/loss calculations may not include commissions and fees. Please consult your broker for details based on your trading arrangement and commission setup.

You should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources. You should read the "risk disclosure" webpage accessed at www.DanielsTrading.com at the bottom of the homepage. Daniels Trading is not affiliated with nor does it endorse any third-party trading system, newsletter or other similar service. Daniels Trading does not guarantee or verify any performance claims made by such systems or service.

Filed Under: Turner's Take

About Craig Turner

Craig Turner is a Senior Broker at Daniels Trading, author of Turner’s Take newsletter, and a Contributing Editor for Grain Analyst. Craig is often quoted in the Wall Street Journal, Reuters, Dow Jones Newswire, Corn & Soybean Digest, and also makes appearances on SiriusXM – Rural Radio Channel 80 providing commentary for the Grain and Livestock markets. Craig has also been featured in FutureSource’s Fast Break series, Futures Magazine Online, and INO.com. Mr. Turner has a Bachelors from the Rensselaer Polytechnic Institute (RPI) where he graduated with honors and has worked at the NYSE and Goldman Sachs. While at Goldman, Craig earned his MBA in the NYU Stern executive program. Learn more about Craig Turner.

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Risk Disclosure

This material is conveyed as a solicitation for entering into a derivatives transaction.

This material has been prepared by a Daniels Trading broker who provides research market commentary and trade recommendations as part of his or her solicitation for accounts and solicitation for trades; however, Daniels Trading does not maintain a research department as defined in CFTC Rule 1.71. Daniels Trading, its principals, brokers and employees may trade in derivatives for their own accounts or for the accounts of others. Due to various factors (such as risk tolerance, margin requirements, trading objectives, short term vs. long term strategies, technical vs. fundamental market analysis, and other factors) such trading may result in the initiation or liquidation of positions that are different from or contrary to the opinions and recommendations contained therein.

Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.

Trade recommendations and profit/loss calculations may not include commissions and fees. Please consult your broker for details based on your trading arrangement and commission setup.

You should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources. You should read the "risk disclosure" webpage accessed at www.DanielsTrading.com at the bottom of the homepage. Daniels Trading is not affiliated with nor does it endorse any third-party trading system, newsletter or other similar service. Daniels Trading does not guarantee or verify any performance claims made by such systems or service.

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