I don't think market conditions have much to do with it. Whether to invest in the market, or in a certain asset class, is a separate decision from whether to pick stocks or buy a passively managed fund.
Passively managed money has been increasing because there are more low-cost funds available, and lots of education about stock picking versus passively managed funds (e.g. Warren Buffet, A Random Walk).
My theory predicts that when the next major recession happens, Vanguard and other passively managed funds will become dramatically less popular (which will amplify the fall), and actively managed funds will come back.
Your theory predicts that none of this will happen when recession strikes.
Passively managed money has been increasing because there are more low-cost funds available, and lots of education about stock picking versus passively managed funds (e.g. Warren Buffet, A Random Walk).