The most common question I’m asked by clients is:
Are we heading into a recession, or when do you think the recession will start?
Certainly, nobody knows the answer to that. But, I found this chart by the Capital Group and the National Bureau of Economic Research and Thompson Reuter’s . And what this chart is showing is that expansions, or growths after a recession, have been considerably longer and stronger than the recessions. This chart goes back to 1950. And what this is showing is back to 1950 in the green is the overall expansion, or growth, of the U.S. economy. And as you can see in that box, the average expansion is around 67 months. The growth during that time of our gross domestic product is a little over 24%. And the S&P 500 cumulatively returned 117%. If we look at the recessions followed by the expansion, on average, they only last 11 months. The GDP dropped 1.8%, the S&P was 3%, and the net jobs lost was 1.9M.
In other words, nobody can predict when the recession will come. But, if we look since 1950, the U.S. has been in a recession only 13.5% of the months, and some of the strongest rallies, as you can see, occurred as stocks bounced back from those recessionary periods.
What should I focus on instead?
Ultimately, it’s important that you look at your timeline of when you need to access the money and invest accordingly. And also, look at your overall tolerance for risk in terms of investing, and not try to determine when the next recession is coming.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
Stock investing involves risk including the loss of principal.
The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.