A recession is looking more likely by the day as the economy slows and the mood turns sour. Assuming that there is a recession in the US, what would it look like and what would the effect on the stock market be? I suspect it would look different than the past two recessions as there are far fewer excesses heading into this recession than the previous two.
Heading into the recession in 2000, we had the biggest stock market bubble in history and the highest valuations in history. Heading into the 2007 recession we had the biggest real estate and credit bubble in history and stock valuations were high. Heading into this recession there are far fewer excesses and valuations are a lot tamer. One would expect that this recession would be milder and that the effect on stock prices would be as well. At last week's low the S&P 500 was already down nearly 20%.
We would likely need to see a depression in order to match the type of bear market that we saw the last two times around. That is certainly not out of the question but its a tough outcome to be betting on. I am expecting a weak economy and likely a recession but am positioned in recession resistant stocks at low valuations. I will speak about some of them in a later post.