If a recession-linked bear market is developing, we can expect a few things to happen.

In an average recession, earnings per share (EPS) fall about 11 per cent. Currently, the S&P 500 Index has US$245 in trailing EPS and growth is still expected to be $268 this year.

That expectation seems extremely unlikely. Post April 2 (“Liberation Day” tariff announcement), the strategists that have changed EPS targets are basically expecting little or no EPS growth.

It’s rare a strategist will forecast a recession outcome until it’s clear and obvious (meaning too late). At 20 times multiple, which is not cheap historically, that equals $245 x 20 = 4,900.

That was about where the market bottomed post April 2 and before the 90-day tariff delay on April 9. If we see the average EPS decline in a recession of about 11 per cent and stay at a somewhat elevated 20 times multiple, we get about $222 x 20 = 4,440.

There are all sorts of ways to measure fair value of a market. We could find targets that are down 40 per cent from the 2025 highs if we wanted to. That’s not the point of our call today if we end up in a recession.

Technically, and psychologically, if we are in a bear market, then sellers tend to get more aggressive on rallies. That means a pattern of lower lows and lower highs generally plays out. Markets respect resistance levels (previous lows and highs) and rarely will markets retrace more than 61.8 per cent of a previous decline, though it’s not impossible. The current 50 per cent retracement is around 5,500, which was the previous low in March.

We have a falling trendline off the February/March highs and the 50-day average will cross below the now rolling over 200-day average this week. There is a lot of overhead resistance. The market opened at 5,500 post April 2 announcement.

It will likely be hard to get back above that level and hold until the tariff war is settled. We are likely in the early innings on that front.

So, while our Pro-Eyes indicator correctly flashed an oversold opportunity last week, that opportunity comes closer to 5,100 or better below 4,900 where valuation, still not cheap, is much better. To get down to those levels again, we need to see economic and earnings weakness, which will probably take a quarter or two to develop.

We are likely in a 5,100 to 5,500 range trade for the next few months with a chance to test the falling 200-day average like we did on the last bounce prior to April 2. If you think a hard landing is coming, the sell off in long U.S. bonds with a yield around five per cent (TLT) is a compelling opportunity.

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