Abstract: This paper examines whether the relationship linking the stock market, corporate earnings, and the real economy operates differently across business cycle phases, using quarterly U.S. data from 1990 to 2024, spanning four recessions. We estimate a vector error correction model to establish the long-run equilibrium relationship among these three components, then extend this to a Bayesian Markov-Switching VECM that holds the long-run relationship fixed while allowing short-run adjustment dynamics to vary across expansion and recession regimes. We find that the stock market self-corrects toward its earnings equilibrium during expansions, but this corrective mechanism reverses during recessions, pushing the index further from fundamentals rather than back toward them. This breakdown is not offset by any feedback running from the real economy back into the system, meaning the disconnect operates unchecked once a recession begins. The result is a sustained and economically meaningful drag on output that accumulates over the following several years.