Does a Recession Cause a Stock Market Drop?
What came first, the chicken or the egg? This classic cause-and-effect problem also applies to economic questions—for instance, does a recession cause a stock market drop, or do falling stock prices cause a recession? When there’s a recession, everything in the economy declines as unemployment rises and consumers are less willing to spend money. Even the fear of a recession can cause the stock market to drop as consumers preemptively reduce spending and companies anticipate lower earnings. With that in mind, we’ll say right away that recessions can cause stock market drops, though the reverse ...