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I see lots of people here talking about recessions and market crashes as though they were the same thing. So let me point out that they aren't. A recession is w

I see lots of people here talking about recessions and market crashes as though they were the same thing. So let me point out that they aren't. A recession is when GDP goes down and a market crash is when stock prices go down. Either one can happen without the other.

ianai 7y ago
I’d say that while the stock crash of 2008 may have subsided, there are still fundamental problems being suffered through across the US from that fall.
- rolltiide 7y ago
  Just use an accurate word to describe that instead of confusing the economically illiterate
domnomnom 7y ago
Generally stocks fall during a recession.
rolltiide 7y ago
100%, there is absolutely no reason for them to be related except in the self-fulfilling prophecy of thinking they are related. multiple quarters where the US GDP decreases, even if its just 0.1% each time, will be called a recession.
- blackflame7000 7y ago
  Let’s say your boss gives you a 3% cut instead of a raise because you’re company didn't earn as much money. That’s less money you could spend or invest to increase the value of other companies and you’re decrease in pay makes you skeptical. So many people buy when they feel good which is usually when the market is high, and panic when the recession hits because they over extended and are forced to sell low. If you aren't earning as much money, you aren't going to spend as much money. The relationship is as simple as that.
  - randallsquared 7y ago
    > Let’s say your boss gives you a 3% cut instead of a raise That basically doesn't happen. If 3% of the payroll needs to be cut, ~3% of people are usually laid off, instead. Resistance to lowered numeric wages is why moderate amount of inflation are typically considered a good thing: workers will more often accept less or no increase than they will an actual drop.
    - blackflame7000 7y ago
      Please don't split hairs on a hypothetical example, it misses the point. You could achieve the same effect with no raise but high inflation. It's irrelevant to the point that the amount someone is earning directly influences how much they are spending.
  - rolltiide 7y ago
    Thats not remotely close to being the only scenario or influencing factors of the business cycle
devonkim 7y ago
The stock market is oftentimes regarded as a leading indicator for the broader economy and is why it’s a strong indicator oftentimes. I’m not quite sure if there’s any causal relationship in any way though.
PorterDuff 7y ago
I admit that the correlations appear pretty vague: https://asset.barrons.com/public/resources/images/ON-BS188_CovCra_G_20160527195442.jpg https://asset.barrons.com/public/resources/images/ON-BS188_C...
- new_realist 7y ago
  Looks like market highs are not hit during recessions.
rayshan 7y ago
Right, they aren't the same. The '87 black friday crash made a big impact on the investment community, but it wasn't a recession. The commonly used U.S. definition is the one from NBER (National Bureau of Economic Research): "A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales." Here's a list of past recessions: https://www.nber.org/cycles.html https://www.nber.org/cycles.html

ianai 7y ago

I’d say that while the stock crash of 2008 may have subsided, there are still fundamental problems being suffered through across the US from that fall.

rolltiide 7y ago
Just use an accurate word to describe that instead of confusing the economically illiterate

domnomnom 7y ago

Generally stocks fall during a recession.

rolltiide 7y ago

100%, there is absolutely no reason for them to be related except in the self-fulfilling prophecy of thinking they are related. multiple quarters where the US GDP decreases, even if its just 0.1% each time, will be called a recession.

blackflame7000 7y ago
Let’s say your boss gives you a 3% cut instead of a raise because you’re company didn't earn as much money. That’s less money you could spend or invest to increase the value of other companies and you’re decrease in pay makes you skeptical. So many people buy when they feel good which is usually when the market is high, and panic when the recession hits because they over extended and are forced to sell low. If you aren't earning as much money, you aren't going to spend as much money. The relationship is as simple as that.
- randallsquared 7y ago
  > Let’s say your boss gives you a 3% cut instead of a raise That basically doesn't happen. If 3% of the payroll needs to be cut, ~3% of people are usually laid off, instead. Resistance to lowered numeric wages is why moderate amount of inflation are typically considered a good thing: workers will more often accept less or no increase than they will an actual drop.
  - blackflame7000 7y ago
    Please don't split hairs on a hypothetical example, it misses the point. You could achieve the same effect with no raise but high inflation. It's irrelevant to the point that the amount someone is earning directly influences how much they are spending.
- rolltiide 7y ago
  Thats not remotely close to being the only scenario or influencing factors of the business cycle

devonkim 7y ago

The stock market is oftentimes regarded as a leading indicator for the broader economy and is why it’s a strong indicator oftentimes. I’m not quite sure if there’s any causal relationship in any way though.

PorterDuff 7y ago

I admit that the correlations appear pretty vague: https://asset.barrons.com/public/resources/images/ON-BS188_CovCra_G_20160527195442.jpg https://asset.barrons.com/public/resources/images/ON-BS188_C...

new_realist 7y ago
Looks like market highs are not hit during recessions.

rayshan 7y ago

Right, they aren't the same. The '87 black friday crash made a big impact on the investment community, but it wasn't a recession. The commonly used U.S. definition is the one from NBER (National Bureau of Economic Research): "A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales." Here's a list of past recessions: https://www.nber.org/cycles.html https://www.nber.org/cycles.html