A strong rally in stock prices on Friday is giving bullish investors renewed hopes of future gains, but other big daily advances recorded in recent months frequently have been followed by declines to new lows. Meanwhile, analysts at Bank of America Merrill Lynch warn that plunging stock prices, spikes in volatility, and evaporating liquidity in the securities markets may set off a general economic contraction. “We think this [volatility] can no longer be dismissed as noise on the grounds of illiquidity or machine trading alone,” BofAML writes in a recent report quoted by Barron’s.

The S&P 500 Index (SPX) posted a 3.4% advance for the day on Jan. 4, but it remains in a correction, now 13.9% below the record high set in September 2018. If BofAML is correct, a vicious cycle may result, given that recessions tend to trigger bear markets, or worsen those that already are underway. The table below shows the longest recessions in the U.S. since 1929, from economic peak to trough.

Longest U.S. Recessions Since 1929

  • 43 months from Aug. 1929 to March 1933
  • 18 months from Dec. 2007 to June 2009
  • 16 months from Nov. 1973 to March 1975
  • 16 months from July 1981 to Nov. 1982

The first of the recessions listed above was the beginning of the Great Depression of the 1930s, and the Stock Market Crash of 1929 occurred in its early stages. The last recession above was punctuated by the financial crisis of 2008, and was accompanied by the most recent bear market for the S&P 500.

“We’re going into a recession. I think it will be this coming year,” is the opinion of David Rosenberg, chief economist and strategist at Toronto-based Gluskin Sheff + Associates, as he told CNBC. “We’ve got more than 80% chance of a recession just based on the fact that the Fed is tightening policy,” he added. “This tightening of financial conditions that we’ve seen in the markets is going to end up having a cascading effect on the economy for the first few quarters if…