How do stock market indices behave during a recession? Today, economists at Natixis expect to see a long period of falling share prices, as interest rates are still rising.

At what point in a recession or a fall in activity can investors return to equities?

“Stock market indices react to changes in earnings, real interest rates, risk aversion and inflation. This reaction is therefore complex.”

“We have seen that since the late 1990s, in terms of the economic cycle, stock market indices have taken four years on average to return to their pre-crisis levels.” 

“One can also compare the evolution of stock market indices with that of central bank interest rates. We see that since the late 1990s: Downturns in stock market indices have occurred during periods of rising interest rates; Stock market indices have recovered a little before the central banks’ interest rates bottomed out and well after the central banks began cutting their interest rates.”