Investors were pleased Wednesday when Federal Reserve Chair Janet Yellen said weakening stock prices pose a risk to the economy, convinced she won’t rush into more rate hikes.<br />But how should everyone else feel with stocks down 10 percent in a year?<br />While far from definitive, evidence exists that equity prices hold clues to the economy, either portending or influencing future growth.<br />A study by the research firm CXO Advisory Group LLC in July 2014 found that changes in gross domestic product only “very slightly” forecast the Standard & Poor’s 500 Index over the next few quarters, while stock signals for the economy are more robust.<br />Bloomberg data shows that since 1929, bear markets have come on average nine months before the start of recessions.<br />Yellen’s testimony before the House Financial Services Committee addressed the possibility markets might contribute to a contraction, rather than simply signal one.
