Recession - Caution or Opportunity?

Regardless of your source, we are bombarded with news; it’s difficult to form an educated opinion on “what’s next”.  With the unending talk about a recession, I wondered what our clients might be reading, so I searched on-line, Stock market results during recessions.[i]  Here’s a quick summary.

Using the S&P 500 Index as the benchmark, in many cases, the stock market declined significantly before the official start of the recession.  Conversely, the market began to recover well before the end of the recession.  The reason this occurs is that investors tend to look forward.  They start to hear or read about a potential recession long before it’s officially declared and they become more cautious with their investments, impacting the stock market before the recession officially starts.  

The opposite is also true.  The stock market often starts recovering before a recession officially ends.  With positive indicators, investors begin buying stocks again often causing a trend, and more investors follow suit, and so on.

The worst recession during modern time, occurred amid the 2008 financial crisis, which many of us remember.  From December, 2007 through June, 2009 the S&P 500 index fell 55% from its peak, a steep decline and severe recession.  The average post-World War II decline during a recession is 29%, skewed by the severe declines from 2007 – 2009.  The median, recessionary decline however is 24%.  Through October 31st, 2022, the S&P 500 is down nearly 18%, not too far off the median.   Finally, the S&P 500 bounces back sharply after every recession and the recoveries often start well before the recession ends. 

Our current market declines, relatively close to the median recessionary declines, along with the knowledge that markets bounce back sharply, may be indicators of excellent buying opportunities for long-term investors?  Patience will certainly be required though. Investing is a commitment not a short-term savings or get-rich quickly scheme.  This is true in bear markets and bull markets. 

[i] https://www.fool.com/investing/2022/07/30/how-does-stock-market-perform-during-recession/