A recession coming?
Today, the 2-year/10-year yield curve inversion officially normalized.
Historically, when the yield curve inverted, it was a signal for a recession.
What were the effects of a recession on US stock markets throughout history?
The historical effects of recessions on US stock markets were significant, with declines and high uncertainty recorded during most recessions:
During recessionary periods, stock markets tend to decline significantly.
For example, during the Great Recession of 2008 (the subprime crisis), the S&P 500 index lost more than 50% of its value before it began to recover.
Increased volatility: Recessions cause market volatility, as investors react sharply to economic or political events (that are approaching). High volatility makes it difficult to determine clear trends and introduces significant uncertainty into the market.
Erosion of investor confidence: A recession harms investor confidence; the fear of declining profits, along with company collapses and bankruptcies, increases concern.
Slowdown in economic growth and reduced corporate profitability: During recessionary periods, there is a significant decline in economic growth, which leads to a negative impact on corporate profitability, especially in economically sensitive sectors such as retail, industry, and finance.
History shows that recessions are a natural part of economic cycles, and that despite short-term negative effects, stock markets tend to recover and reach new highs in the long run.