Only 30% of Bear Markets Since 1960 Coincided With a Recession

By Olivia Hart

Just 30% of bear markets since 1960 have coincided with a recession, down from 84% between 1900 and 1960. That figure sits at the center of a new analysis by Mark Hulbert, a regular contributor to MarketWatch, who argues that the U.S. economy now means far less to Wall Street than it once did.

Hulbert calls the phenomenon the "Wall Street-Main Street disconnect." His evidence is statistical, not anecdotal: the share of bear markets overlapping recessions has collapsed over six decades, and the correlation between GDP growth rates and the S&P 500's earnings-per-share growth has been in a steady downtrend over the same period. The exception was a brief upward blip during the global financial crisis.

The takeaway in plain words: the stock market no longer tracks the economy the way textbooks say it should.

What has replaced the economy as a market driver?

Hulbert points to two forces: profit margins and price/earnings multiples. A fatter margin turns each dollar of revenue into more earnings; a higher multiple turns each dollar of earnings into a higher stock price. Both, he notes, have been climbing steadily for years.

He attaches a number to their combined effect. By his own "back-of-the-envelope calculations," if profit margins and P/E multiples had stayed constant over the past decade, the S&P 500 today would be 45% lower. That is a large claim resting on a rough estimate, and Hulbert flags it as such. Still, even a discounted version of the math implies that most of the index's gains came from financial engineering of valuation and margins rather than from economic output.

The takeaway: investors may be pricing multiple expansion, not growth.

Could AI widen the gap further?

Hulbert argues it could, and he does not sugarcoat the scenario. "In some of the dystopic visions of the future in which AI dominates, AI companies' profits mushroom even as millions of jobs are lost and unemployment skyrockets," he writes. "If that were to happen, then the Wall Street-Main Street disconnect would become complete."

That is a projection, not a forecast with a probability attached, and Hulbert offers no timeline. But he sees early evidence of the divergence already. Incumbent politicians, including the current president, have celebrated the stock market's new highs even as consumer sentiment flirts with record lows.

The University of Michigan-style sentiment reading he cites hit an all-time low of 44.8 this summer, breaking the previous low of 50 set in mid-2022. The index now stands at 48.0 — barely above the summer trough, while equity benchmarks sit at records. For context, sentiment has improved by roughly three points from its worst-ever reading while the market notched all-time highs.

The takeaway: record stocks and near-record pessimism are coexisting, which is precisely the disconnect Hulbert describes.

What should investors actually watch?

Hulbert's practical conclusion is blunt. He writes that investors "should focus less on whether a recession is imminent or how fast the economy is growing, and instead on profit margins and P/E multiples."

That advice carries a caveat he states himself: a weakening economy still matters, and the piece does not claim economic strength has no impact on the market. He leaves the socio-political significance of the disconnect to others and confines his verdict to portfolio strategy.

There is also a disclosure worth noting. Hulbert's firm, Hulbert Ratings, audits investment newsletters that pay a flat fee for the service — a structural tie between the analyst and the products he evaluates.

The takeaway: if Hulbert is right, the traditional recession-watching playbook matters less than margin and valuation cycles. The unresolved question — and he does not answer it — is how long margins and multiples can keep climbing before something else, possibly the economy itself, reasserts control.