Recession and the Markets: Use of the 'R' Word at an 18-Year Low

Aug.21.06 | About: SPDR S&P (SPY)

While debate over the likelihood of a recession seems to have picked up recently, we did a word search in The Wall Street Journal and The New York Times and found that occurrences of the term in those papers remain stuck near 18-year lows. Looking at the last two US contractions, we found that occurrences of 'recession' in both papers appear to be coincident with the onset of a recession, implying that they generally appear when most people aren't expecting them.

click charts to enlarge

Regardless of where one stands with respect to the direction of the economy, we created a chart which calculates the average performance of the S&P 500 before, during and after a recession (periods outlined below). As the chart details, the S&P 500 tends to peak roughly two months before the official start, and starts recovering about two thirds of the way into the recession.