| As we’ve said all year, we think economic growth will continue to slow and the chance of a recession in 2023 is elevated. Although a recession is certainly not a foregone conclusion, the magnitude and speed of interest rate increases is reason alone to consider how different investments tend to perform during economic recessions. The good news is that the S&P 500 is already down 20%, so at least some of the damage has been done. In fact, the behavior of stocks during official recessionary periods as defined by the National Bureau of Economic Research (NBER) might surprise you. |
- Stocks usually decline most before a recession hits: The average decline for the S&P 500 during the past ten recessions is only 2.2% while the median decline is only 4.9%.1
- Stocks are sometimes up during recessions: The S&P 500 was positive in four of the past ten recessions, including the early 1980s when the Fed was aggressively fighting inflation.2
- Stocks often begin to recover before a recession ends: the average return from the cycle’s peak (often before the recession starts) to the end of the recession is -15.3%, even if the average peak-to-trough decline is much larger (about 36% in the average Bear Market).3
- The average return one year after a 25% or more decline is far above average: Since 1960, there have been eight declines in the S&P 500 of 25% or more (the current decline would make it 9). One year later, the average return is nearly 23%.4
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