"While it’s not saying much, the market has shown a better record in predicting recessions, with signals strengthening as prices snowball. Among all the 20 per cent drops that have hit American stocks since the Great Depression, all but two preceded or coincided with U.S. recessions, according to data compiled by Bloomberg.
Today’s environment, in some way, reminds Ryan Grabinski, a strategist at Strategas Securities, of what happened in the early 1990s, when Iraq’s invasion of Kuwait fueled a similar spike in oil. Back then, the S&P 500 fell into a bear market and the U.S. entered a recession.
“Perhaps the scary part is that in 1990, the Fed funds rate was 8 per cent and eventually embarked on an easing cycle,” Grabinski wrote in a note. “Today, the Fed is at the beginning of a hiking cycle. It seems more and more likely a recession is unavoidable.”