What’s in a name? A recession is an extended period of declining economic output, wages, employment, industrial production, and retail sales.¹

A recession is not the same as a down market: The stock market is based on expectations for the economy in six to 12 months, so stocks can move up during a recession—or down when the economy’s expanding. By contrast, economic recessions or expansions may not be identified until months after they begin.

The customer is always right: Consumer spending is the largest driver of US economic growth. Today, it accounts for about 68% of US economic activity.²

What goes up must come down: Recessions and expansions are a normal part of the economic cycle. There have been 13 recessions since 1945, occuring about six years apart on average.³

We grow more than we contract: Excluding the Great Depression, US recessions have lasted an average of about 10 months. The Great Recession, which followed the global financial crisis, lasted 18 months; the expansion that followed it is the longest on record, spanning more than 10 years. The pandemic-induced recession in 2020, which lasted two months, is the shortest on record. 

Connected, but not always in sync: Even in today’s interconnected world, individual countries can enter recessions without involving the global economy. According to the World Bank, there have been six global recessions since 1950 (compared to 13 in the US in the same time frame).⁴

Bad begets good: The Federal Reserve Bank of Cleveland found that the worse a recession, the stronger the expansion that followed it. They didn’t find a connection between the length of an economic expansion and the severity of the recession that followed it.⁵

Not all stocks are created equal: Recessions impact various sectors of the economy, and the stock market, differently. Industries considered “cyclical” are more impacted during economic contractions (think discretionary purchases such as travel), while others are necessities regardless of economic cycle (think utilities).

Stocks can grow when the economy contracts: Although down markets sometimes coincide with recessions, stocks actually produced positive returns during seven of the 13 recessions since 1945. In fact, the S&P 500 Index gained 3.68% on average during recessions (see chart below).