Markets Don't Always Move in Tandem with Recessions
Some investors worry about the probability of a market downturn after a recession is announced.
History shows, however, that markets account for potential recessions far before their official announcement, and much more information is priced into market volatility outside of recessionary risks.
Take the 2008-2009 global financial crisis and subsequent deep recession, for example.
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This period shed a lot of light on the forward-looking nature of the stock market.
The US recession began in December 2007 and ended in May 2009, highlighted in the shaded area of the chart above.
The official announcement stating that the US economy was in a recession, however, came in December 2008, a full year after the recession had actually started!
By that point, and as you might reluctantly recall, US stocks had already fallen 40% from their highs before the recession. A few short months after, the market began rebounding heading into 2009.
Even though the recession technically ended in May 2009, the announcement stating the recession ending came a whopping 16 months later in September 2009.
The stock market had started rebounding before the recession was actually over and climbed through the official announcement.
Investors who nervously sold out of their long-term portfolios were left in the dust when the market recovery began.
The stock market is always processing new information, pricing in expectations for both companies and the economy, among other things. Investors who look beyond after-the-fact headlines and stick to a plan may be better positioned for long-term success.
Do you have questions about how to invest during a potential recession? Reach out to me at Ben@coveplanning.com or schedule a free consultation call.
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Ben Smith is a fee-only financial advisor and CERTIFIED FINANCIAL PLANNER™ (CFP®) Professional with offices in Milwaukee, WI, Evanston, IL and Minneapolis, MN, serving clients virtually across the country. Cove Financial Planning provides comprehensive financial planning and investment management services to individuals and families, regardless of location, with a focus on Socially Responsible Investing (SRI).
Ben acts as a fiduciary for his clients. He does not sell financial products or take commissions. Simply put, he sits on your side of the table and always works in your best interest. Learn more how we can help you Do Well While Doing Good!
Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. I encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Ben Smith, and all rights are reserved. Read the full Disclaimer.