Recession Is One Threat Stocks Have Never Been Able to Weather

Stocks in developed markets showed they can stand up to a lot last week. One thing they almost certainly can’t withstand is a global recession.

With oil again surging as governments step up sanctions on Russia, yield curves signaling growing apprehension over growth and concerns mounting about 2008-style liquidity crunches as the dollar surges, pressure on economies is rising. Should it result in a full-blown downturn, it will become much harder for equities to stay resilient.

U.S. stock futures plunged as much as 2.9% Monday, erasing gains from late last week as speculation that central banks would throttle back on tightening policy gave way to worry that the geopolitical crisis in Europe could slow global economic growth. Getting that call right can be the difference between a 36% drop -- the average bear-market decline -- in the S&P 500 or a more pedestrian downturn in stocks that could give way to a rebound, said JC O’Hara, chief market technician at MKM Partners.

MKM noted 33 corrections in the S&P 500, defined as 10% declines from closing highs. Seven of those extended losses to meet the accepted definition of a bear market, down 20% -- but the other 26 reversed and led to new highs. The average correction was 15% -- in line with the 14.6% drop from Jan. 4 to the intraday low on Feb. 24.