This was not just a pandemic recession phenomenon. The stock market usually begins its recovery long before the economy. JPMorgan’s Michael Cembalest reviewed the history in an October 2022 research note .

"There is a remarkable consistency to the patterns shown below: equities tend to bottom several months (at least) before the rest of the victims of a recession," he wrote.

Historically, the stock market bottomed about five months before the economy . Sometimes the lead time is longer. Sometimes its shorter. On one extremely rare occasion — the dotcom bubble — the market bottomed after the economy.

The economic news has been getting gloomier

The U.S. economy has been cooling for a while as the major tailwinds early in the recovery normalized .

The good news had been that the economy was nevertheless still growing bolstered by consumers’ ability to spend and businesses’ willingness to invest .

While we might not necessarily be heading for recession, we could be in the midst of a " growth scare, " which has historically come with big stock market sell-offs followed by rapid rallies.

Growth scare-y anecdotes have been accumulating recently. Since the beginning of March:

Because the stock market is a discounting mechanism, you could argue that the current drawdown that began on Feb. 19 was the market pricing in the bad news we’re getting now.

This again speaks to the quandary investors face as they think about making adjustments to their portfolios. The stock market does not price in what’s going on today. It’s pricing in what’s expected in the weeks, months, and years ahead.

And that future is uncertain. It could be worse than what we currently expect. It could be better.

No one can say for sure that the stock market hit its low for the year. However, we also shouldn’t be surprised if we soon experience a sustained rally as incoming news just confirm gloomy expectations that have already been priced into the market.

Zooming out

In hindsight, divergences in the stock market and the economy make sense. But in the moment, it often feels wrong.

What feels right is when the stock market falls as you get information that indicates the present and near future are deteriorating, and vice versa.

However, there is likely to be a moment where the stock market moves higher as it resumes pricing in a better future. And that moment is likely to happen when the economic headlines are bad.

It all speaks to the perils of trying to time the market .

Is it possible we learn that the economic situation proves far worse than what’s priced into the market today? Absolutely.

Can we guarantee that? Absolutely not.

Review of the macro crosscurrents

There were several notable data points and macroeconomic developments since our last review :

Consumer vibes tumble . From the University of Michigan’s March Surveys of Consumers : "Consumer sentiment slid another 11% this month, with declines seen consistently across all groups by age, education, income, wealth, political affiliations, and geographic regions. Sentiment has now fallen for three consecutive months and is currently down 22% from December 2024. While current economic conditions were little changed, expectations for the future deteriorated across multiple facets of the economy, including personal finances, labor markets, inflation, business conditions, and stock markets."

Small business optimism falls . From the NFIB’s February Small Business Optimism Index report: "Uncertainty is high and rising on Main Street, and for many reasons. How future developments are resolved will shape the economy’s future. Confidence that the economy will continue to grow is fading."

Inflation cools . The Consumer Price Index (CPI) in February was up 2.8% from a year ago, down from the 3% rate in January. Adjusted for food and energy prices, core CPI was up 3.1%, down from the prior month’s 3.3% level.

On a month-over-month basis, CPI and core CPI were up 0.2%.

If you annualize the six-month trend in the monthly figures — a reflection of the short-term trend in prices — core CPI climbed 3.6%.

Inflation expectations deteriorate but remain cool . From the New York Fed’s February Survey of Consumer Expectations : "Median inflation expectations increased by 0.1 percentage point at the one-year horizon, to 3.1%, and were unchanged at the three-year and five-year horizons (both at 3.0%) in February. … Median inflation uncertainty — or the uncertainty expressed regarding future inflation outcomes — increased at all three horizons."

Gas prices tick lower . From AAA : "Despite increased demand, gas prices dipped lower this week, with today’s national average at $3.07 per gallon, about 3 cents lower than a week ago. This drop at the pump comes as many travelers gear up to hit the road for spring break and drivers may be surprised to find gas under $3 in 31 states."

Card spending data is holding up . From JPMorgan: "As of 07 Mar 2025, our Chase Consumer Card spending data (unadjusted) was 2.6% above the same day last year. Based on the Chase Consumer Card data through 07 Mar 2025, our estimate of the US Census February control measure of retail sales m/m is 0.20%."

Mortgage rates tick lower . According to Freddie Mac , the average 30-year fixed-rate mortgage declined to 6.65% from 6.63% last week. From Freddie Mac: "Despite volatility in the markets, the 30-year fixed-rate mortgage remained essentially flat from last week. Mortgage rates continue to be relatively low versus the last few months, and homebuyers have responded. Purchase applications are up 5% as compared to a year ago. The combination of modestly lower mortgage rates and improving inventory is a positive sign for homebuyers in this critical spring homebuying season."

There are 147 million housing units in the U.S., of which 86.6 million are owner-occupied and 34 million (or 40% ) of which are mortgage-free . Of those carrying mortgage debt, almost all have fixed-rate mortgages , and most of those mortgages have rates that were locked in before rates surged from 2021 lows. All of this is to say: Most homeowners are not particularly sensitive to movements in home prices or mortgage rates.

Unemployment claims tick lower . Initial claims for unemployment benefits declined to 220,000 during the week ending March 8, down from 222,000 the week prior. This metric continues to be at levels historically associated with economic growth.

Federal layoffs brought by the Trump administration’s Department of Government Efficiency appear making their way into the data. Initial claims filed by federal employees came in at 1,580 in the week ending March 1.

Job openings rise . According to the BLS’s Job Openings and Labor Turnover Survey , employers had 7.74 million job openings in January, up from 7.51 million in December.

During the period, there were 6.85 million unemployed people — meaning there were 1.1 job openings per unemployed person. This continues to be one of the more obvious signs of excess demand for labor . However, this metric has returned to prepandemic levels.

Layoffs remain depressed, hiring remains firm . Employers laid off 1.63 million people in January. While challenging for all those affected, this figure represents just 1% of total employment. This metric remains at prepandemic levels.

Hiring activity continues to be much higher than layoff activity. During the month, employers hired 5.39 million people.

That said, the hiring rate — the number of hires as a percentage of the employed workforce — has been trending lower, which could be a sign of trouble to come in the labor market.

People are quitting less . In January, 3.27 million workers quit their jobs. This represents 21% of the workforce. While the rate ticked up last month, it continues to trend below prepandemic levels.

A low quits rate could mean a number of things: more people are satisfied with their job; workers have fewer outside job opportunities; wage growth is cooling; productivity will improve as fewer people are entering new unfamiliar roles.

Offices remain relatively empty . From Kastle Systems : "Peak day office occupancy was 63.4% on Tuesday last week, down six tenths of a point from the previous week. Philadelphia hit a post-pandemic record high of 53.6% on Tuesday, up nearly a full point from the previous week. The average low was on Friday at 36.4%, up 1.2 points from last week."

Putting it all together

Earnings look bullish : The long-term outlook for the stock market remains favorable, bolstered by expectations for years of earnings growth . And earnings are the most important driver of stock prices .

Demand is positive : Demand for goods and services is positive , and the economy continues to grow. At the same time, economic growth has normalized from much hotter levels earlier in the cycle. The economy is less "coiled" these days as major tailwinds like excess job openings have faded .

But growth is cooling : The economy remains very healthy, supported by strong consumer and business balance sheets , though momentum is slowing. Overall, job creation remains positive , and the Federal Reserve — having resolved the inflation crisis — has shifted its focus toward supporting the labor market .

Actions speak louder than words : We are in an odd period given that the hard economic data has decoupled from the soft sentiment-oriented data . Consumer and business sentiment has been relatively poor, even as tangible consumer and business activity continue to grow and trend at record levels. From an investor’s perspective, what matters is that the hard economic data continues to hold up.

Stocks look better than the economy : Analysts expect the U.S. stock market could outperform the U.S. economy , thanks largely due to positive operating leverage . Since the pandemic, companies have adjusted their cost structures aggressively. This has come with strategic layoffs and investment in new equipment , including hardware powered by AI. These moves are resulting in positive operating leverage, which means a modest amount of sales growth — in the cooling economy — is translating to robust earnings growth .

Mind the ever-present risks : Of course, this does not mean we should get complacent. There will always be risks to worry about — such as U.S. political uncertainty , geopolitical turmoil , energy price volatility , cyber attacks , etc. There are also the dreaded unknowns . Any of these risks can flare up and spark short-term volatility in the markets.

Investing is never a smooth ride : There’s also the harsh reality that economic recessions and bear markets are developments that all long-term investors should expect to experience as they build wealth in the markets. Always keep your stock market seat belts fastened .

Think long term : For now, there’s no reason to believe there’ll be a challenge that the economy and the markets won’t be able to overcome over time. The long game remains undefeated , and it’s a streak long-term investors can expect to continue.

A version of this post first appeared on TKer.co