The connection between a recession and the stock markets

Question

You always hear the connection between recessions and stock markets. I understand a recession would trigger the stock market to plunge. But I don’t understand why and I also don’t understand the timeline of events of a recession and what’s happening with the U.S. economy overall during a recession.

In: Economics

Answer 1

Recessions mean lower revenue and lower profits for a company as consumers pull back on spending. Lower profits, typically cause stocks to fall because P/E (price /earnings) ratio is typically one of the most looked at metric for company performance.