Trying to Time a Recession?

Some economic indicators suggest that a recession is possible in 2023, while others give mixed signals.As we have discussed, economic fluctuations are normal, and if we enter a recession, it is not a reason to panic. As detailed below, every recession is unique, with varying lengths and severities. Putting recessions in context, in the past we have come through each slowdown, and the trajectory of the U.S. economy over time has been positive.The typical business cycle has four phases: expansion, peak, contraction, and trough. As unpleasant as they can be—especially for those who lose their jobs or businesses—recessions are not an uncommon part of the business cycle. In fact, the U.S. economy has weathered through 13 recessions since World War II. These downturns have ranged from long and deep to short and shallow. On average, America’s post-war recessions have lasted 10 months, while expansions have lasted for 57 months.1
In the accompanying illustration, you can see how stock prices have reacted before, during, and after each of the 13 recessions. Since 1950, stock prices have anticipated recessions, dropped during them, and started to rise before their ending. However, keep in mind that past performance is no guarantee of future returns.2,3,4More specifically, the illustration shows that stocks dropped by an average of 4% in the year before each recession. During the recession itself, the stocks fell about 20% before entering the recovery phase and trending higher.2
From our conversations, you know that trying to time recessions or markets is impossible. Making major portfolio moves in anticipation of a slowdown is difficult, even for professional investors. Instead, we will continue monitoring the economy and keep you updated as we see long-term trends emerging.If you have any questions, please do not hesitate to contact us. We are always here for you.
1., 20232., November 4, 20223. Investing involves risks, and investment decisions should be based on your own goals, time horizon and tolerance for risk. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost.4. Stocks are represented by the Standard & Poor’s 500 Composite Index, an unmanaged index that is considered representative of the overall U.S. stock market. Individuals cannot invest directly in an index. The S&P 500 was expanded in 1957 to include 500 stocks. Prior, the composite index comprised 233 companies.
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Shari Burnum