Report Reveals How Indices and Commodities Trade in Recession

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Investors become concerned about falling stock prices and the potential negative impact on their portfolios when the economy is heading toward a recession.

During a recession, stock prices tend to drop drastically, and the stock market can become highly volatile due to investor reactions to both positive and negative news. This can lead to some investors withdrawing their investments from the market.

Companies cutting workforce in downturns

Companies often respond to economic downturns by cutting the number of workers they employ, which can lead to high levels of unemployment and decrease consumer spending, causing a further economic decline.

According to the New York Times, the S&P 500 lost 16.4 per cent in the second quarter of 2022, leaving it 20.6 per cent below its level at the end of 2021.

“I think we’re in for a lot more pain, probably, in U.S. stocks. Just to get back to historical valuations, we could easily go down a third from here.” According to Meb Faber, the chief investment officer of Cambria Investment Management.

“The real question is not whether we have a recession, it’s how hard growth decelerates and how long the slowdown is sustained,” said Ron Temple, managing director of Lazard Asset Management.

Recurring trading patterns during US recessions

According to Daniel Dubrovsky, Currency Analyst for DailyFX, recurring trading patterns often emerge in financial markets during economic recessions in the United States. Although these patterns may not always be identical, the historical performance of key assets can offer insights into potential market reactions.

Dubrovsky’s report offers a comprehensive analysis of the trading performance of the U.S. Dollar, gold, S&P 500, Australian Dollar, and 10-year Treasury yield during the first three months of economic downturns in the U.S.

Using a GPD-based recession indicator to assign dates to downturns, which differs from the widely used two consecutive quarters of negative growth, he also employs a correlation-weighted currency index to analyse the U.S. and Australian Dollars, providing a broader perspective on the direction of these currencies against the world.

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