As volatile stocks flirt with bear territory, investors wonder if the US economy is in recession territory — and how long it’ll last

Moodier than a 13-year-old... the stock market right now. The S&P 500 went from flirting with a bear market (down nearly 20% from its record) to closing the week up 7%. After the plunge of March 2020 (FYI: the shortest bear market ever) stocks went full bull: the S&P doubled in value between March 2020 and January 2022. Then the plunge began.

• Bad-news bear: The S&P is down 13% this year, while the techy Nasdaq is in a bear market, down 23%. Historically, most S&P bear markets were accompanied by recessions.
• Driving it: Stubborn inflation and rising interest rates are leading to slower econ and earnings growth. Russia's war on Ukraine and China's Covid policy compound the situation.
• But: Stocks rebounded after some strong retail earnings and consumer-spending data, plus less-aggro-than-feared rate-hike indications from the Fed.

The market ≠ the economy... yet the economy affects the market. Company valuations are tied to growth expectations. Those have fallen, both for companies and the economy. After lockdowns began, trillions in gov’t stimulus $$ boosted spending and record-low interest rates made borrowing cheaper. Now:

• Stimmy withdrawal: The artificial demand boost is gone. High rates are making earnings expectations get “corrected” down. Many companies are reporting lower (but still relatively high) forecasts as inflation hits demand and profits.
• Negativity intensifies: GDP shrank last quarter, and while the labor market is very strong, we’re seeing more layoffs and cost-cutting as corporate growth slows. The probability of a recession appears to be growing, while economic confidence is sagging.