A Stock Market View of Incoming Recession Expectations

CAMS View from the Corner

March 25, 2025

In today’s edition we lean heavier toward charts than is customary.  Yet again, we will consult with collective market participants but this time we will look at an individual company, as representative of a sub-group which is contained within a larger sector of the stock market.

Our preferred market for such consultation is always the bond market, via its messaging through the various categories of issuers it offers.  Being it is the smartest market, or a strong contender for such labeling, it is always wise to add a plethora of views relative to what that market is suggesting. 

Realizing the vast majority of our market participant messaging editions has been geared toward the bond market, we thought today a stock market nugget may be worthwhile.

Recession Watch

The airwaves seem to be filled with expectations of an incoming recession.  As each week passes by here in 2025, those expectations seem to be morphing into guaranteed recession prognostications.  For our part, we cannot find a preponderance of evidence, to date, that an incoming recession is a certainty, as is often suggested.

Recession may indeed present itself, and yet, this would not be the first time that X economic scenario was widely expected to enter the landscape only to mysteriously never present itself and, in turn, prove the broad expectations incorrect.

Today we look at payroll processors through the lens of one company in the space.  The basic logic here is that recessions experience reduced economic growth, and through this, employment recedes.  Payroll processors experience a logical follow-on of downside in their business models. 

Collective stock market participants are not interested in bidding up shares of a company, or any area within any market that is expected to experience a reduction in their business activity for any reason.  When it pertains to a general recession as an overriding reason, participants begin to walk away from such shares as they begin to ascertain, with ever more confidence, that the incoming recession is a certainty.

When this backdrop begins to present itself we can also expect to see these types of companies leading the stock market to the downside.  This is an important tell that the incoming recession is an increasing concern.

We do this by running various studies on an ongoing basis to determine if they are leading the stock market to the downside.

The company we are using as our tool in this edition (we emphasize it is a tool; this is not investment advice, pro or con for this company) is Paychex, Inc., which is a long-standing payroll processing firm that handles hiring services, employee benefits, time and attendance services, to name a few of their offerings.

First, let’s look at the first two recessions of this 21st century and view the behavior of this company’s share price prior to the official beginning of the recessions in question.

Click For Larger View:  https://schrts.co/DDfSmzKI

The above chart depicts Paychex shares beginning in the year 2000 and continuing through the first half of 2002.  Our red vertical lines depict the beginning and then the end of the recession in that period. 

Our blue down arrow is the important point to observe. 

Collective market participants began to show a notable disinterest in this space, and hence this company, prior to the official beginning of the manifested recession.  Importantly, Paychex also quickly began to lead the market to the downside.  Participants were offering a tell that something was amiss prior to the recession.  They were proven correct as the recession ultimately entered the scene.

Click For Larger View:  https://schrts.co/xBBmShMG

The above takes us to the second recession of this 21st century.  Just as in our first chart, our red vertical lines depict the beginning and then the end of the recession of late 2007 on through to mid-2009.

Note our blue down arrow prior to the beginning of the recession. 

Again, market participants were offering concerns of inbound recession as they consistently walked away from the above shares. 

In addition, just as in our first chart, in this period these shares also led the market to the downside.  Their downside market leadership was and is always a very important ingredient in the mix.  With this, participants were offering economic concerns as they looked downstream.  Again, they were ultimately proven correct.

It is important to note that when focusing on an individual company to depict a larger story for a particular business space, the above type of behavior can certainly occur, which has nothing to do with economic expectations but rather offers company-specific concerns. 

This was not the case in the above and can be corroborated through various observations.  One simple observation approach is to note if the overall space is also being treated poorly by collective participants, as one example.  Corroboration of numerous observations is always the key in deciphering messaging.

Click For Larger View:  https://schrts.co/FNvhxTKf

This brings us up to the current day as displayed above.  We have added a blue horizontal line to note the change in price behavior in the previous couple of weeks.  Technically speaking, this is known as a failed breakout. 

That is, price broke out to a new high, eclipsing the high point of the blue line, only to then turn back south of the blue line, which in turn offered a failed breakout.

As a side note, we have been observing an abundance of failed breakouts here in 2025, to include in recent weeks.  An abundance of failed breakouts is one tell from collective participants that the health of the stock market is deteriorating. 

For our part, we quickly took note of that in how we have been deploying capital as this market characteristic presented itself early this year.  This behavioral characteristic has continued to current day. 

Moving back to our central topic, with the above chart, we also added a red horizontal line to offer the next line in the sand if you will.  If the above pricing behavior penetrates and holds below this area, it will be suggesting further deterioration as that, back in October, represented an upside breakout as well. 

The point is, more and more breakout points will be lost to downside price action.  If you place enough of those together, you have a legitimate downtrend. 

This then takes us back to concerns of signaling an incoming recession in light of this representing an economically sensitive area.

We are not here current day.  The above is meant to offer what various price behavior potentials can be signaling.

Very importantly, unlike the recessions presented above, Paychex and its space are not leading the stock market to the downside currently. 

In fact, they were behaving as solid market leaders, as measured against the S&P 500, here in 2025, until recent trading sessions.  Even with this recent storyline, they are in no way currently leading the market to the downside.

We continue to watch the above payroll processing space for additional signaling, along with many other market-based observations in aiding our assessment of the prospects of near-term recession.  While various areas are chirping, we are not seeing an abundance of signals that offer recession is imminent.

I wish you well…

Ken Reinhart

Director, Market Research & Portfolio Analysis