as many economists predict — history is telling investors to stay on the sidelines, at least for the short term. In the first half...

Share story

If a recession is on the way — as many economists predict — history is telling investors to stay on the sidelines, at least for the short term.

In the first half of a recession, as well as the 12 months leading up to one, stocks have fallen sharply, according to Tobias Levkovich, chief U.S. equity strategist for Citi Investment Research.

Since 1953, the Standard & Poor’s 500 index has dropped 25.6 percent, on average, from its peak before a recession to its nadir during one.

If there’s a recession — though Citi forecasts the U.S. will avert one — Levkovich sees the S&P 500 falling 15 to 20 percent from its most recent peak of 1,576.09, set Oct. 11. That would imply a bottom of 1,260.87.

But stock declines are concentrated almost entirely in the first half of a recession, Levkovich says. Since the one in 1953 to 1954, the S&P 500 has gained during the latter half of a recession.

The second-half gains have been so strong that in recessions, on average, stocks have historically gained.

Merrill Lynch economist David Rosenberg, one of the more pessimistic on Wall Street, says the United States may already be in a recession. He says the typical recession lasts 10 months, so investors hoping to buy stocks at the bottom should wait until May or June.

“This is not a train you will want to stand in front of for at least the next six months if in fact our analysis is correct in that a recession has just begun.”

He recommends high-quality bonds, predicting the yield on the 10-year Treasury will drop to 3.5 percent from 3.8 percent. Bond yields move opposite of prices.