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

Oct 12, 2022, 3:10 PM | Updated: Oct 13, 2022, 3:11 am
FILE - Traders work on the floor at the New York Stock Exchange in New York, Tuesday, Oct. 4, 2022....

FILE - Traders work on the floor at the New York Stock Exchange in New York, Tuesday, Oct. 4, 2022. If the economy really is headed for a recession, the stock market may have still more to drop. (AP Photo/Seth Wenig, File)

(AP Photo/Seth Wenig, File)

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.


FILE - A Boeing 747-8, Boeing's new passenger plane, takes its first flight, Sunday, March 20, 2011...
Associated Press

Boeing’s last 747 to roll out of Washington state factory

After more than half a century, Boeing is set to roll its last 747 out of a Washington state factory on Tuesday.
16 hours ago
(AP Photo/Paula Bronstein, File)...
Associated Press

Inslee touts new housing program for Spokane’s homeless

Washington Gov. Jay Inslee was in Spokane Monday to preview the opening of a new housing project for homeless people, calling the Catalyst Project a step toward ending the state’s homelessness crisis.
16 hours ago
FILE - In this photo released by the Saudi Royal Palace, Saudi Crown Prince Mohammed bin Salman, ri...
Associated Press

US court dismisses suit against Saudi prince in killing

WASHINGTON (AP) — A U.S. federal judge on Tuesday dismissed a lawsuit against Saudi Crown Prince Mohammed bin Salman in the killing of U.S.-based journalist Jamal Khashoggi, bowing to the Biden administration’s insistence that the prince was legally immune in the case. District of Columbia U.S. District Judge John D. Bates heeded the U.S. government’s […]
16 hours ago
A burned-out warehouse is seen, Tuesday, Dec. 6, 2022, in Baltimore. A man was found dead inside th...
Associated Press

Body of Baltimore fire victim went undiscovered for hours

BALTIMORE (AP) — Several hours after firefighters extinguished a warehouse fire in southwest Baltimore early Sunday, the scene was eerily quiet as Donte Craig stepped through the charred rubble, trying to remain hopeful. He was looking for his older brother James Craig Jr., who leased the warehouse for his demolition and hauling business. After hearing […]
16 hours ago
Associated Press

Judge reduces award for flight attendant who sued Southwest

DALLAS (AP) — A federal judge cut a flight attendant’s $5.1 million jury award to about $800,000 but ordered Southwest Airlines to rehire the woman, who had claimed that the airline and her union conspired to fire her for expressing opposition to abortion. U.S. District Judge Brantley Starr said in a ruling issued Monday that […]
16 hours ago
Associated Press

No northern giant hornets found in 2022 in Washington state

BELLINGHAM, Wash. (AP) — Citizen trapping of northern giant hornets in northwest Washington ended Nov. 30 without any confirmed sightings of the hornets this year, state officials said Tuesday. The Washington State Department of Agriculture also said that no confirmed sightings of the hornets were reported nearby in British Columbia, Canada. The northern giant hornet […]
16 hours ago

Sponsored Articles

Comcast Ready for Business Fund...
Ilona Lohrey | President and CEO, GSBA

GSBA is closing the disparity gap with Ready for Business Fund

GSBA, Comcast, and other partners are working to address disparities in access to financial resources with the Ready for Business fund.

Medicare open enrollment is here and SHIBA can help!

The SHIBA program – part of the Office of the Insurance Commissioner – is ready to help with your Medicare open enrollment decisions.
Lake Washington Windows...

Choosing Best Windows for Your Home

Lake Washington Windows and Doors is a local window dealer offering the exclusive Leak Armor installation.
Anacortes Christmas Tree...

Come one, come all! Food, Drink, and Coastal Christmas – Anacortes has it all!

Come celebrate Anacortes’ 11th annual Bier on the Pier! Bier on the Pier takes place on October 7th and 8th and features local ciders, food trucks and live music - not to mention the beautiful views of the Guemes Channel and backdrop of downtown Anacortes.
Swedish Cyberknife Treatment...

The revolutionary treatment of Swedish CyberKnife provides better quality of life for majority of patients

There are a wide variety of treatments options available for men with prostate cancer. One of the most technologically advanced treatment options in the Pacific Northwest is Stereotactic Body Radiation Therapy using the CyberKnife platform at Swedish Medical Center.
Work at Zum Services...

Seattle Public Schools announces three-year contract with Zum

Seattle Public Schools just announced a three-year contract with a brand-new company to the Pacific Northwest to assist with their student transportation: Zum.
Had enough? S&P plunge could deepen if recession takes hold