Yes, The 2022 Stock Market Crash Can Get Worse

On April 28th American’s got some real bad news - Real Gross domestic product - or Real GDP turned negative in Q1.

For those of you who haven’t touched your Finance 101 textbook since college like me, Gross Domestic Product is essentially the total value of goods produced and services provided in a country during one year. Think of GDP like the total salary you bring in. The higher the better.

Real Gross Domestic Product is simply GDP adjusted for inflation.

Naturally when GDP is positive - or growing - that means the country is making more than a year ago - and when GDP is negative, it means the country is producing less.

The textbook Definition of an economic recession is when a country prints two consecutive quarters of negative GDP. So the Untied States is one more negative quarter from officially being in a recession.

In other words - the United States might be in recession now.

But what does this mean for stock prices?

GDP has been negative before - so what happened to stocks leading up to - and after GDP turns negative?

On today’s video we’ll find out.

Let’s flash back to the year 2000. The United States hadn’t experienced NEGATIVE REAL GDP in over a decade and the stock market was in the midst of one of the longest - and steepest bull runs the market had every seen.

In Q1 2001 the stock market actually looks eerily similar to today’s market. In fact - it’s almost identical.

After years of the market only going up, the first cracks in the market started showing up in late 2000. By Q1 2001 the first negative GDP print appeared for the first time in over a decade.

At the time - the S&P500 index was trading around the 1,300 level in January. Two years later the S&P 500 was under 900. That was a 30% decline in two years.

Following that massive decline, stocks naturally went on another bull run … but it wasn’t until four years later in 2007 when the S&P500 was back over 1500 - the highs the markets saw before the 30% crash between 2001 and 2003.

Ironically - just like in 2001 GDP turned negative in Q1 of 2008 - just one quarter after the stock market had made all-time highs again.

And just like 2001 - the stock market crashed. This time in spectacular fashion over a 14 month span dropping from over 1400 in January 2008 to infamously bottoming in March of 2009 at 666

That was a 54% decline.

Since 2009 Real GDP has turned negative a few times with mixed results.

In 2011 Real GDP turned negative in Q1- which signaled another market top - as stocks fell about 20% over the following 6 months.

GDP was negative again in Q1 2014 - however stocks increased leading all the way into the 2016 presidential election.

The most dramatic GDP decline was of course in 2020 when COVID-19 first reached the shores of the United States. This time, the decline in GDP was well telegraphed and understood. However stocks still declined over 30% in the first quarter alone.

That leads us back to today. Just like in 2001 and 2008 - the stock market has a massive bull run in its rearview. The stock charts, the topping pattern and a Q1 negative REAL GDP print all look nearly identical.

Looking ahead, if the stock market acts anything like 2001 and 2008 - stocks will decline even more. A 30% decline from the highs we’ve made in January 2022 would take the stock market below 3300.

A 50% decline would take us below 2400.

Could stocks reverse and go higher in the coming months? Sure. It’s possible. But history shows that when the untied states economy prints a negative real GDP number - it’s only the start of stock market declines.