Recessions and Market Returns

Eric Ross |


What does a century of economic cycles teach investors about investing? Explore this interactive exhibit to learn how stocks have behaved during the last 100 years of US economic downturns. Markets have often rewarded investors even when economic activity has slowed. This highlights how current market prices reflect market participants' collective expectations for the future.

The data show 16 recessions in the period beginning in 1926 to present. During these recessionary periods, the stock market was just as likely to be higher vs. lower at the end of the recession than at the beginning of the recession. This pattern extends to more recent times where in the last 6 recessions the stock market has finished the end of the recessionary period lower 3 times and higher 3 times.

A pattern also emerges showing that the market bottom occurred before the end of the recession in every case except one. This lowpoint has occurred with equal likelihood across early, middle, and late stages of the recessionary period. The one exception is the COVID-19 recession in early 2020. At 2 months, it was the shortest recession in the last 100 years. The market bottom of -20.2% coincided with the end of the recession and the market finished the year returning a gain of 24%.

An important point that is often not discussed is that the beginning and ending point of a recessionary period is often not known until months after the fact. This makes it all the more important that investor portfolios are positioned with a long-term view because by the time a recession is officially determined to be over, the markets are likely well on their way higher.

We are students of market history and follow the academic research focused on creating successful investor outcomes. We also recognize that each client's situation is unique which is why we tailor our advice to your specific needs. Our advice may approach certain situations with more caution and others with an eye towards opportunity. In any environment, you can be confident that we are monitoring conditions closely and providing advice that is unique to your individual life circumstances.


Interactive Exhibit:  Recessions and Market Returns