Financial Planning Fridays #139: Market Performance During a Recession
Recession headlines often raise concerns about market timing. This video reviews S&P 500 performance before, during, and after every U.S. recession since 1948, showing that the market has historically risen during recessions on average, with stronger returns in the years that follow, and explains why recessions are difficult to time.
Recession headlines often raise concerns about market timing. This video reviews S&P 500 performance before, during, and after every U.S. recession since 1948, showing that the market has historically risen during recessions on average, with stronger returns in the years that follow, and explains why recessions are difficult to time.
Key takeaways
- The S&P 500 has averaged a modest 1.08% decline in the six months leading up to a U.S. recession since 1948, based on this data.
- Historically, the market has averaged a positive 3.8% return during recessions themselves.
- Returns in the 1, 3, 5, and 10 years following a recession have historically been stronger, according to the chart referenced.
- Because no one can reliably time when a recession will start or end, staying invested through the cycle is presented as the more effective approach, though past performance does not guarantee future results.
Hi friends, given the recent headlines, let's take a closer look at the economic recessions in the United States since 1948 and how the market has performed before, during, and after them. A recession is two quarters in a row of negative GDP growth. In other words, the U.S. economy shrinks instead of grows two quarters in a row. This wonderful chart from First Trust shows the performance before, during, and after these negative economic events.
Let's start with the bad news first. The S&P 500 was down an average of 1.08% in the six months leading up to a recession. Not too bad. Next, and surprisingly, the market was actually up an average of 3.8% during the recession. And finally, the amazing part: look at these returns in the 1, 3, 5, and 10 years after a recession. This is why we stay invested before, during, and after a recession, to fully capture this part of the chart. This is where incredible wealth is built.
Recessions cannot be successfully timed by anyone. No one can accurately say when they will start and when they will end. Consequently, we can't risk selling before or during one and then missing out on the enormous gains that have been made afterwards. Thank you, and I look forward to talking with you next Friday morning.
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