The narrative predefined

Recession and bear market are the standard terms these days – both economic milestones that are at once quantitatively definable and deceptively subjective. And both, explicitly or implicitly, suggest a prolonged and persistent pattern, a multi-period continuation that defines its era.


The analysts and pundits have designated the 3-week (thus far) turmoil a bear market, rigidly in line with the 20% rule and blind to the possibility of a rebound (because in fairness who can know)…


… attributing the event to a global recession, per the defining criteria, in anticipation.


Now, if the pandemic at the center of attention turns out to be short-lived, and if the economic consequence turns out to be a speedy rebound after the initial shock, triggered by pent-up demand in a system currently blocking its own supply for unique and special reasons, the referenced designations will, with hindsight at that time, not altogether fit, not really.

Which will be noticed only then, weeks or months into the future, long (by today’s standards) after the events they correspond with will have passed.

Semantics, in the meanwhile, are important in a time of rapid-fire social distribution and consumption, where the narrative is shaped sometimes before it’s fully understood, and where, in markets in particular, the trading often happens on the basis of keyword triggers. What’s more, to the extent the label drives behavior, as much as vice versa, the reflexivity can’t be entirely ignored.

These arbitrary near-term guideposts in advance – bear market, recession – suggestive as they are of lasting trends, come with distorting consequences. It is assumed that markets capture all the information, but among this trove of knowledge is the circular reaction in the market itself.

Financial markets are narrative exchanges, and to the extent the market narrative affects the economic result, which in turn perpetuates the market narrative, the observed network pattern is not unlike that of a viral condition. It requires watching and discerning vigilance, lest its growth should dominate and fundamentally take over.