Stock Markets and Recessions
There has been a lot of talk recently about the chances of a recession over the next few years, with some economists calling it ‘all but a certainty’ and others casting doubt. However, the one thing we already know for sure is that it has caused a lot of volatility and fear in the stock market. Most broad market indexes are near or approaching yearly lows, and the moves down have been at times fast and furious.
With that being said, it begs a couple questions: how do markets typically perform during a recession, and when is the ‘bottom’? Looking forward, it’s an impossible question to answer with any certainty, but we can look back at past performance to get an idea of what has happened previously.
There have been 10 official recessions over the last roughly 60 years, and on average the market has fallen between 25% and 30% (the S&P is down roughly 20% this year as of Sept 26th). Typically, markets tend to start the decline well before a recession occurs and start to recover before the recession is over.While it is insightful to look into previous market behavior during recessions, each new recession is unique and may react totally differently to what we have seen in the past. Always remember – past performance does not guarantee future performance, and it is always important to do your homework!
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