Recession anxiety: How much more downside in markets?

“Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.” – Peter Lynch

INVESTOR anxiety has shifted from inflation fears to recession worries. The level of bearishness among investors and analysts is the highest in recent memory, with a large majority thinking that we’re already in a global recession, or about to enter one. Every recent discussion around the stock market has ended with the same proclamation: “I’ll wait for the next pullback before buying; the world is entering a recession, if not already in one.” To top it all off, the US just announced that Q2 gross domestic product (GDP) was negative, causing a “technical recession” of 2 negative GDP quarters in a row.

When there’s weakness in markets and economies around the world, the key difference between a shallow bear market (average of minus 20 to 25 per cent, which we have already seen) versus a deep bear market (more than 35 per cent fall) is whether the US enters recession, given its position as the world’s largest economy and largest exporter of capital. US recessions cause a shortage of dollars around the world, aggravating the economic contraction in emerging markets, causing deeper equity bear markets.