Had enough? S&P plunge could deepen if recession takes hold

Oct 13, 2022, 3:10 AM | Updated: 3:12 am

NEW YORK (AP) — If the economy really is headed for a recession, the stock market may have still more to drop.

The S&P 500 came into this week having already plunged roughly 24% from its record high earlier this year. But history shows the average U.S. recession since 1947 has brought an even bigger fall for stocks: roughly 30%, according to Goldman Sachs.

Recently, the pain has been even worse than that. The last three recessions have seen the main measure of the U.S. stock market lose between 34% and 57%.

How stocks behave around recessions isn’t an academic question. With the Federal Reserve hiking interest rates sharply in hopes of getting inflation under control, more economists are warning of a possible downturn.

The housing industry has already been hit hard by the leap in mortgage rates that have resulted from the Fed’s moves. Sales of new homes sank in the summer to their weakest level in more than six years. Growth has slowed elsewhere in the economy too. Manufacturing is expanding at its weakest pace since the 2020 recession.

The jobs market is still doing well and unemployment is very low, as employers continue to hire hundreds of thousands of workers every month. That’s actually discouraging to Wall Street, believe it or not.

The good news for wage earners will likely spur the Fed to aggressively hike interest rates further, and keep them there longer. Higher interest rates will slow the economy by making it more expensive to get a loan to buy a house, a car or anything else on credit.

High rates also hit the two main levers that set stock prices. On one hand, they can drag down corporate profits by making borrowing more expensive, and lower sales through a weaker economy.

On the other hand, high rates change stock investors’ risk-reward calculation: Investors can get relatively better returns by buying safe bonds, which draws money away from riskier stocks.

Strategists at Goldman Sachs say the S&P 500 could ultimately fall 34% from its peak if investors become convinced a “hard landing” is coming for the economy. In that scenario, the S&P 500 could fall to 3,150 by the middle of next year. It closed Tuesday at 3,588.84.

Strategists at Deutsche Bank are even more pessimistic. They say stocks looked particularly expensive coming into this year, with one measure of valuation at its highest level on record outside the tech bubble at the turn of the millennium. The German bank says the S&P 500 could fall to early-pandemic levels around 3,000, if profits drop by the usual amount for a recession.

Copyright © The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


Associated Press

Mamie King-Chalmers, woman in civil rights photo, dies at 81

DETROIT (AP) — Mamie King-Chalmers, who as a young Black woman appeared in an iconic photo about civil rights struggles in Alabama, has died at the age of 81. She died Tuesday in Detroit, her home since the 1970s, daughter Lasuria Allman said. A cause wasn’t disclosed. King-Chalmers, 21 at the time, was one of […]
17 hours ago
Associated Press

Nebraska man gets prison for leaving noose for coworker

LA VISTA, Neb. (AP) — A former employee at the Oriental Trading Co. has been sentenced to prison for leaving a noose on a floor scrubber that a Black colleague was set to use. The Nebraska U.S. Attorney’s office said Bruce Quinn, 66, was sentenced Friday to four months in prison and one year of […]
17 hours ago
Associated Press

Guest lineups for the Sunday news shows

WASHINGTON (AP) — ABC’s “This Week” — Reps. Hakeem Jeffries, D-N.Y., and Dave Joyce, R-Ohio; Sam Bankman-Fried, founder and former CEO of cryptocurrency exchange FTX. __ NBC’s “Meet the Press” — Israeli Prime Minister-designate Benjamin Netanyahu; Rep. Katherine Clark, D-Mass. __ CBS’ “Face the Nation” — Secretary of State Antony Blinken; Reps. Pete Aguilar, D-Calif., […]
17 hours ago
Rev. Paula Stecker of the Christ the King Lutheran Church tidies up a memorial outside Club Q follo...
Associated Press

EXPLAINER: What do we know about the Colorado bomb threat?

DENVER (AP) — More than a year before police say Anderson Lee Aldrich killed five people and wounded 17 others at a gay night club in Colorado Springs, Aldrich was arrested on allegations of making a bomb threat that led to the evacuation of about 10 homes. Aldrich, who uses the pronoun they and is […]
17 hours ago
Pennsylvania state House of Representatives' impeachment managers Reps. Craig Williams, left, Tim B...
Associated Press

Philly prosecutor sues to stop lawmakers from removing him

HARRISBURG, Pa. (AP) — Philadelphia’s elected prosecutor asked a state court Friday to halt a Republican-led effort to remove him from office, arguing that the process ended when the Legislature’s two-year session ran out earlier in the week. District Attorney Larry Krasner, a Democrat, wants Commonwealth Court to declare that the General Assembly lacks constitutional […]
17 hours ago
FILE- Then-President Donald Trump holds a photo of LeGend Taliferro as he speaks at a news conferen...
Associated Press

Guilty plea in boy’s death that sparked federal task force

KANSAS CITY, Mo. (AP) — A man pleaded guilty Friday in the killing of a 4-year-old Kansas City boy whose death led to a federal operation meant to reduce violent crime in 2020. Ryson Ellis, 24, of Kansas City, was sentenced to 22 years in prison after pleading guilty to second-degree murder, unlawful use of […]
17 hours ago

Sponsored Articles

Day & Night Air Conditioning, Heating and Plumbing

Prep the plumbing in your home just in time for the holidays

With the holidays approaching, it's important to know when your home is in need of heating and plumbing updates before more guests start to come around.
(Desert Institute for Spine Care photo)...

Why DISC is world renowned for back and neck pain treatments

Fifty percent of Americans and 90% of people at least 50 years old have some level of degenerative disc disease.
Children’s Cancer Network

Children’s Cancer Network celebrates cancer-fighting superheroes, raises funds during September’s Childhood Cancer Awareness Month

Jace Hyduchak was like most other kids in his kindergarten class: He loved to play basketball, dress up like his favorite superheroes and jump as high as his pint-sized body would take him on his backyard trampoline.
Had enough? S&P plunge could deepen if recession takes hold