Could a Severe Equities Sell-off Prolong Economic Expansion?

Erik Norland, Senior Economist and Executive Director, CME Group
Originally published in the November 2018 issue

Could an equity market correction prolong the nearly decade-long US economic expansion, thus delaying the onset of any recession? It seems like an odd, counterintuitive question but the truth is that a sharp pullback in equities might be exactly what is needed to keep the Federal Reserve from inadvertently throttling the economic expansion with one rate hike too many. 

First, the equity market is not always a great indicator of economic recessions. Remember the Great Depression of 1987 and 1988? How about the 1998-99 recession? Or the 2011-12 downturn? If you can’t recall those economic disasters, you’re not alone. They never happened. Sharp selloffs in equity markets, however, did happen: -36% between August 1987 and October 1987; -20% in July and August 1998 and -22% in the summer of 2011. No recession followed on the heels of any of these selloffs. 

This article is only available to subscribers.

Having problems?

If you have any questions regarding subscriptions or restricted content, please contact us on +44 (0)207 278 3385 or