a quickly slowing economy produced Powell’s shift represented 42% of all responses. If correct, this is the worst case scenario for the stock market. Global economic growth is already decelerating as witnessed by the declining GDP growth posted by Germany, Canada, Italy, Japan and Switzerland in the most recent quarter. Further, China, the main engine for global economic growth since the financial crisis, is sputtering.In addition to the global forces affecting the economy, the growth benefits seen over the last year from a massive surge in fiscal spending and corporate tax cuts are waning. Lastly, higher interest rates are indeed taking their toll on our debt-burdened economy.
It goes without saying that stocks tend to do very poorly during recessions, regardless of whether the Fed is dovish and lowering rates. During the past two recessions, the S&P 500 dropped over 50% despite aggressive interest rate cuts.