According to Forbes contributor David Rodeck, a recession is a “significant decline in economic activity that lasts for months or even years.” Formally, a recession is defined as being two or more quarters during which economic activity contracts. Symptoms of a recession include rising unemployment, falling personal incomes, and lagging industrial output. Although recessions are… Read more.
Traditional financial theory suggests that a recession is two consecutive quarters of negative growth in a nation’s gross domestic product (GDP). The underpinnings of these types of economic downturns vary. Typically, a recession is attributed to commodity pricing instability, market crashes, inflation, or extraordinary events.
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.