With the growth scare over, as called on these pages on August 25^{th}, the discourse has gone from a Fed Put backstop to a regional Fed President (Bostic) now calling for an outright pause in the policy rate cutting cycle.

Indeed, market-implied growth expectations ticked up last week. Treasury yields and equity prices nudged up. Fed cut pricing got weaker on the back of the CPI data and upticks to the core PCE forecast. 50 more basis points is looking sus for the remainder of the calendar year.

The above reinforces the notion that the U.S. economy remains in a mid-cycle bull market.

**Mid-Cycle Bull Market**

The U.S. stock market is a funny thing. On the one hand, there is a clear fundamental relationship between NBER recession dates and market returns.

On the other, the stock market has its own internal logic, driven by intangibles such as investor confidence and expectations about the future.

Regarding point one above, the S&P500 has had negative returns in 20 out of the last 78 years after World War II. Of those 20, 13 (65%) were around recessions.

Only two recessions, the one that started in January of 1980 and the deep but quick one of 2020, did not lead to negative return years. The S&P500 returned 25.77% in 1980. That number is 16.26% for 2020.

Thus, we know with a fair amount of certainty that recessions have a high probability of generating negative return years, and the returns tend to be deeply negative.

Regarding point two above, where the market seems to have its own internal logic, the remaining 7 years of negative non-recessionary returns occurred when events reduced investor sentiment and confidence.

Unlike recessions however, these events led to market losses that mostly ranged from the low single digits to the low double digits in the tweens (not a typo). 2002 and 2022 are exceptions where non-recessionary years generated deep market losses.

Thus, *most* non-recessionary, negative return years are not destructive to balanced and diversified portfolios. The recovery math to break even and resume positive compounding is favorable to investors with a time horizon of as little as 12-24 months.

Recessionary negative return years are horrific, and can take many years to recover from, depending on the policy response. Lost decades become a thing. Dot-com vintage investments in public equity markets did not recover their losses until 2013.

**Thirteen years of despair-inducing, roller coaster returns.**