A major stock market correction would hurt global growth but is unlikely to trigger a worldwide recession on its own, according to new analysis from Capital Economics. The firm's chief global economist, Jennifer McKeown, argued that while equity downturns can amplify existing weakness, history shows that "the causality almost always runs from the economy to markets rather than the reverse."

McKeown said U.S. equity declines of 20 percent or more "often coincide with recessions but rarely or never cause them," noting that the most damaging episodes, including 1929 and 2008, saw stock prices fall "alongside an independently weakening economy." Those downturns intensified as tightening credit, balance sheet stress and collapsing confidence fed into the real economy.

By contrast, the firm highlighted episodes in 1946, 1962 and 1987, when corrections had "limited economic impact because the backdrop was stable, balance sheets were healthy and/or policymakers responded quickly." The lesson, it said, is that markets become dangerous when they collide with vulnerabilities such as high leverage or financial instability. Capital Economics expects the S&P 500 to fall 12.5 percent next year, a move that would have "very limited economic consequences." Even a deeper 20–30 percent correction "need not cause a recession in isolation," thanks to steady growth, easing inflation, stronger bank balance sheets and more resilient emerging markets.