From Recession with Love: Financial Markets’ Improper Affection for Economic Downturns

Jan Libich

Published: December 2022

This article examines why some conventional finance theory no longer seems to apply in the post-2008 period. It discusses the reasons for financial markets responding to good news about economic fundamentals as if it was bad news. My controversial conjecture is that (as long as inflation is no longer an imminent threat) recession news would be welcomed by the financial markets – boosting equity prices rather than lowering them. I further document the increasingly-important “flight to focal points” phenomenon, offering examples from the meme stocks and cryptocurrency asset classes as well as some predictions going forward.

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