The article emphasizes the cyclical nature of stock market declines during periods of recession, suggesting that investors should look to historical data for guidance. Recessions lower consumer demand, GDP, and business investments, often leading to sharp drops in stock indexes. Historical declines include significant plummets during various recessions, such as the early 1990s and 2001. The article argues that recent drops due to the Great Recession and COVID-19 are not typical and cautions that without accounting for these anomalies, investors might underestimate potential future declines in the market, forecasting a possibility of a 25% correction.
Periods of recession naturally hit stock prices; consumer demand causes a drop in GDP, leading to lower business investments and access to loans.
The Great Recession and COVID-19 market drops are poor indicators for future trends as they were unprecedented events, not typical recession patterns.
Historically, recessions have caused significant stock market declines, with corrections likely closer to 25%, suggesting the S&P could drop to 4,560.
Shakespeare's advice, "What's past is prologue," serves as an important reminder for investors observing the cyclical nature of market declines during recessions.
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