Recession vs Market Performance

In tonight’s bout we have, in the red corner, the official call of a Recession and in the green corner we have market performance of the S&P500 following this announcement.

Let’s get ready to rumble…….

Recession. When people hear that word it immediately invokes feelings of hopelessness and fear. But should it? We all know that due to the “Shelter-In-Place” advice for health safety reasons world economies are grinding to a halt. A recession seemed inevitable.

Turns out it was inevitable as the National Bureau of Economic Research made it official in the US and said the longest economic expansion in US history ended in February after a record 128 months. NBER typically defines a recession as lasting “more than a few months”. But the press release went on to say the scope and magnitude of the recent decline in economic activity warranted the designation of a recession, even if it ends up being shorter than a traditional one.

Now that NBER has made the recession official, as an investor, what should you do?

To answer that question we have taken a look at prior recession calls and what has happened to the S&P500 after it was made official

The graph below shows the S&P500 going back to 1980. Recessions are highlighted in grey, and the date NBER made the official announcement is shown as a red dot. Blue dots are when they declared the recession over.

When you look at this chart you can see that while it often sounds dire, the official declaration of a recession hasn’t exactly been negative for the market. Short-term results are mixed. Of the 5 prior recession calls, the following month has been negative 3 times and positive twice. Six months after that reverses to 3 positive and 2 negative and 1 year later 4 are positive with only 1 negative

What can we take away from this?

Well, if history is anything to go by, 12 months from now we should not be too concerned about the coronavirus recession. Stocks are a long-term investment and in the past a recession has been a good time to buy. As we move forward from here, we continue to advise using any dips as an opportunity to buy good quality companies.

Ding, Ding, seconds out……round two…….