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The Equity Bear Market Won’t Be Over Before Recession Begins

A pedestrian passes a Wall Street subway station near the New York Stock Exchange (NYSE) in New York, U.S., on Monday, June 27, 2022. Money managers betting on a sustained global rebound will be left sorely disappointed in the second half of this crushing year as a protracted bear market looms, even if inflation cools.
A pedestrian passes a Wall Street subway station near the New York Stock Exchange (NYSE) in New York, U.S., on Monday, June 27, 2022. Money managers betting on a sustained global rebound will be left sorely disappointed in the second half of this crushing year as a protracted bear market looms, even if inflation cools.Photographer: Michael Nagle/Bloomberg

Contrary to the myth of equity markets being forward-looking, past experience shows stocks kept rising right into a recession and falling through much of it. That means there is more pain to come if you think the US is heading into a recession. 

Ever the optimist, I’m still hoping the US economy avoids a recession — or at least a deep one. It does seem like a long shot. But I’m not the only one being optimistic. Last week stocks were rallying. And the best part of the rally came when Treasury yields rose across the board on Friday. That’s a combination that points to some economic optimism. You wouldn’t see that if stocks were rallying in anticipation of a recession inducing a Fed rate pause.