Assessing Yellen's Warning That Markets Pose a Threat to Economy
- Inside the wealth effect and what happens when IPOs dry up
- Bear markets usually come about nine months before recessions
Former Yellen Adviser Says Recession a ‘Live Possibility’
Federal Reserve Chair Janet Yellen told Congress Wednesday that weakening stock prices pose a to the economy, indicating to investors a more gradual approach to rates. But how should everyone else feel with stocks down 10 percent in a year?
While far from definitive, evidence exists that equity prices hold clues to the economy, either portending or influencing future growth. A study by the research firm CXO Advisory Group LLC in July 2014 found that changes in gross domestic product only “very slightly” forecast the Standard & Poor’s 500 Index over the next few quarters, while stock signals for the economy are more robust. Bloomberg data shows that since 1929, bear markets have come on average nine months before the start of recessions.