New - Current Market Assessments - Atlas Capital Advisors

Markets and the Economy

How economic cycles shape financial markets

Academic research finds a recurring pattern in financial crises. Investors and borrowers tend to extrapolate, expecting the conditions of the recent past to continue. These dynamics lead to self-reinforcing uptrends in credit, investment markets, and the economy, causing the Value (the relationship of prices to fundamentals) of investment assets to deteriorate.

Market busts and financial crises arise when optimistic beliefs are disappointed. The usual source of disappointment is a downturn in economic growth. The headline description for most of the equity bear markets in US history is:

"Stocks were expensive, and then there was a recession."

The link between economic growth and stock prices

Economic growth drives earnings growth, and earnings growth drives stock prices. As a consequence, changes in the economy and in stock prices are closely aligned.

Atlas monitors the most important economic data from the largest economies in order to create a big-picture view of economic changes. The two lines on the chart below are the one-year change in global stock prices (in black) and the percentage of the global economic data which improved in the prior year (grey shading). It's quite evident from the chart that equity price changes are tightly interlinked with economic changes.

Recent Market Cycle: 2022–2026

In the recent cycle, the economic data began to improve in late 2022 and the stock market turned for the better at the same time. From that point through 2023, stock market returns led the economic data upward — in general, equity investors were correct in positioning for economic improvement.

In 2024, the stock market continued to surge upwards, while the global economy was stable. As of February 2026, the economic data appears to be improving, supporting the gains in equity prices.

% of Economic Data Improving and One Year Global Equity Price Change

Monitoring Recession Risk

Investors in equities are most vulnerable to sustained losses when stocks are expensive and there is a recession. It is straightforward to observe expensiveness but quite challenging to predict if a recession is imminent.

The metric which Atlas finds helpful for predicting US recessions is the proportion of global economic data which is "bad and getting worse."

"Bad" means the data is below the median for the entire history of that data series.
"Getting worse" means the latest data release is worse than the median for the prior year.

In the last fifty years, whenever the proportion of data in the "bad getting worse" category rose over 50%, the US entered a recession, usually within a few months.

Consequently, if Atlas observes that this metric is climbing toward 50%, particularly if several other items on our equity risk dashboard are negative, we will tend to advise clients to lower the equity risk in their portfolios.

In August 2022, the proportion of economic indices we track which were in the "bad getting worse" category breached the 50% level. This would typically imply a recession was due. However, in this instance, the proportion "bad getting worse" fell back below 50% in February 2023 and no recession occurred in the US.

There has been improvement in the economic data ("bad getting worse" line mostly falling) since late 2022. As of February 2026, the downtrend in the "bad getting worse" metric has continued, signaling that the risk of a recession continues to decline.