New Zealand's benchmark share index has suffered its worst start to the year since 2008 - and there's likely to be more pain still to come.
The NZX50 fell 16.6 per cent between the start of the year and June 30, the worst six-month period since the six months to June 30, 2008, when the index dropped by 20.9 per cent.
That was when the world was in the midst of the global financial crisis and New Zealand was in a recession.
Still, it's not as bad as the S&P500, which has been hit by its worst first half since 1970.
Mark Lister, head of private wealth research at Craigs Investment Partners, said sharemarkets usually fell ahead of a recession.
"It sees it coming and then usually bottoms and drags itself out ahead of the recession ending, which was definitely the case in the US back then."
Lister said the GFC bottom for sharemarkets was March 2009. At that point, the US was still in recession and it stayed there until June 2009.
"The market turns when it sees those recessionary risks on the horizon and then it also turns in the other direction when it starts to see that recovery on the horizon."
What will the second half hold?
Lister says the market is starting to see the recessionary risk as rising.
"The weakness we have seen over the first half of this year has been predominantly driven by much higher inflation than expected and much faster interest rate hikes than we expected and that has seen markets repriced to lower levels."
Now investors are worried that interest rate hikes will tip the country, and the world, into a recession of some magnitude.
"As we sit here today it looks finely balanced, depending on who you ask. Call it 50-50 whether we find ourselves in recession and that will be a function of whether inflation comes off the boil quickly enough to give the central banks a chance to ease off or whether they have to keep pumping up interest rates."
Lister said a lot of that was already baked into the sharemarket: "We have already suffered a pretty hefty fall. The sharemarket is completely aware of many of those risks."
But he sees a bit more pain to come.
"I don't think we will see a repeat of the first half. The US markets were down 20 per cent in the first half of the year - I don't think it's going to be down another 20 per cent in the second half of the year.
"We have got a bit more downside to come because what we haven't seen is some of the economic impact of the interest rate rises. You are still yet to see companies start reporting weaker profits, still yet to see mortgage holders put the wallet away and stop spending, or unemployment creep up."
Bear markets typically saw a fall of 30 to 35 per cent. If today's falls followed the typical pattern, that meant there could be another 10 to 15 per cent to come in the US markets.
"But the bulk of it is behind us."
In terms of the time frame, bear markets typically lasted for about a year. That could mean the current bear market ends around the start of next year.
"The balance of this year will probably remain difficult and then we approach a bit of a turning point."
But it is impossible to predict exactly what will happen.
There are signs that inflation is peaking - or has peaked already. This week oil prices slumped 10 per cent overnight Tuesday.
Lister said oil prices were a key piece of the puzzle.
"Commodity prices starting to come off, that's crucial, and there are other signs of some of the supply bottlenecks easing."
New Zealand inflation data is still expected to be on the rise as our statistics only come out quarterly, whereas other countries such as the US and UK release the information monthly.
"If we did it monthly, we might have already seen the highest point."
He said the peak was likely to be behind us but inflation was not likely to fall back to 2 or 3 per cent by the end of the year.
That means more interest rate hikes to come. But Lister said one positive for New Zealand was that we were one of the first countries to start unwinding stimulus, with the Reserve Bank halting its quantitative easing in July last year, while it began hiking the official cash rate in October.
The Federal Reserve only stopped doing QE a couple of months ago and the US, Australia and Europe were well behind NZ on increasing their cash rates.
"The good news is we are much further through that interest rate hiking cycle than others. We have already taken a decent chunk of our medicine whereas for others it is still to come."
Companies still to feel the pain
Share prices have fallen but companies themselves are still to feel the pain from higher borrowing costs, either directly or from consumers curtailing their spending.
"What you have seen is the share prices adjust, which they have. But we haven't seen the impact of the higher borrowing costs, the higher staffing costs and higher fuel costs and lower New Zealand dollar which means all those offshore costs are higher."
Analysts will be closely watching the pressure on margins and the impact from potential lower spending on revenue.
The August and February reporting seasons could be where these impacts show up in companies' bottom lines.
Who will be the winners and losers?
Most companies were in reasonable shape when it came to their debt levels, Lister said.
However, it was not just what was happening to their interest bills, but revenue as well.
During any period of recession or economic slowdown, it is typically businesses that sell discretionary items that suffer the most.
Those in retail, or SkyCity Entertainment - which owns casinos, restaurants and bars - or the likes of Sky TV - where subscribers might cancel to cut costs - are expected to face added pressure.
Fuel costs could also hit Mainfreight and Freightways.
The Warehouse and Briscoe Group sold both discretionary and necessary items, Lister said.
"Sometimes people are trading down to more affordable items which those two businesses do sell and they are both good operators. Briscoes in particularly has shown itself to be a sharp operator through all parts of the cycle."
While he didn't expect those retailers to "fall off a cliff", he said they would not be immune from the economic downturn.
"They will be suffering from trying to get staff, maybe those staff cost a little bit more. The New Zealand dollar is lower now which means a lot of stuff they buy costs them more. At the same time revenue may fall or flatline."
But other retailers such as Restaurant Brands tended to do well in a recessionary environment as consumers continued to buy fast food.
Those more insulated from a downturn included the power companies, telcos and parts of the property sector if they have good properties and tenants.
But those stocks' prices already reflected the fact that investors see them as a safe haven, Lister said.
Spark, Chorus and Vector have all enjoyed relatively strong share prices compared to the market.
"The reason they have held up is because everyone knows they will be the more resilient ones."
Other companies had share prices that were more beaten up because people are expecting them to run into more trouble.
The winners and losers were predictable from a profitability and earnings sense, but in terms of which shares prices do well from here, some of those already beaten up may see their share price rise if they put out a result that is better than the market was expecting.
"You are going into the oddball situation where someone is going report a terrible result and the share price is going to go up because it has already been smashed in the six months before that. That is the bit everyone in the market is trying to get a handle on and it's really hard."
UBS analysts were this week looking at how stocks reacted during the GFC to help work out how they might perform this time around.
"Our analysis illustrates a solid relationship between NPAT (net profit after tax) revisions and GDP growth over the past 15 years."
They estimate that if GDP grew by 3 per cent over the next 12 months then NPAT across the NZX50 could fall by 5 per cent but if GDP fell 2 per cent, as it did during the GFC, then NPAT could fall 13 per cent.
Only 24 of the 50 companies in the NZX50 were listed back in the GFC period and for those stocks, NPAT was downgraded 26 per cent from the FY2007 peak to the FY2009 trough.
The largest falls came from Tourism Holdings, Air New Zealand, Goodman Property Trust, Fisher & Paykel Healthcare, Contact Energy, Skellerup, Spark and Fletcher Building.
Vital Healthcare, Kiwi Property Group, Vector, Argosy and Port of Tauranga reported the lowest revisions in profit.
The analysts said of greatest interest were those stocks which saw relatively low profit revisions during the GFC but had seen larger year-to-date share price declines this year.
Those companies included Kiwi Property, Argosy, Freightways, Mainfreight and Ryman.
Meanwhile, those that had high GFC revisions and had so far seen relatively small share price declines included Spark, Contact, Sanford and The Warehouse.