Bear markets give investors about eight months warning that a recession might be on the way. But, how do we define a “bear market” formally to take this hypothesis to the data?

The make things even more difficult, Nobel Laureate Paul Samuelson’s famously quipped “the stock market predicted nine of the past five recessions.” Meaning that

• a) that bear markets lead recessions
• b) bear markets sufficient but not necessary conditions for recessions.

If we define a bear market as any -20% decline in the stock market for at least one month, there have been 13 bear markets in the postwar era, but only 7 recessions. So In this case, bear markets have about a 50-50 chance of predicting recessions.

Here are some leading indicators of recessions which may or may not predate bear markets.