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Is a Recession Imminent, Are We Already in One?

A couple questions I’ve been getting more frequently are – “Is a recession imminent?” or “Are we already in a recession?” Unfortunately, I don’t have a definitive answer to either of these questions, and neither does anyone else. Sure, many people will give you their opinion on the subject, but they are just that – opinions. And what you’ll find is that defining a recession is somewhat subjective. I have my opinions like everyone else, but it doesn’t really matter what I think.

We won’t actually “know” we were in a recession for probably another year or so when a bunch of economists from the National Bureau of Economic Research (NBER) tell us we were in one. By that time no one will care because we will have moved on to the next phase of the economic and business cycle.

What many forget is that we actually entered a “technical recession” in the summer of 2022. A technical recession is defined as two consecutive quarters of negative economic growth. But, I doubt there’s an economist on the planet that would argue we were actually in a recession in 2022. The characteristics of a recession just were not present. And some of those characteristics still are not present – like unemployment. We still have crazy low unemployment, which is something you just don’t typically see in a recessionary environment. But all these things can change rapidly, and there are certainly other signs that point to an economic decline.

How would a recession impact you?

How recessions impact individuals and families is a very personal thing. Every recession is different. Some industries actually do quite well during an economic pullback, depending on the circumstances. And the people working in those industries tend to have job security and don’t necessarily feel much impact from the recession. And the opposite is true for other industries that will certainly suffer. Workers in these areas could see reduced opportunities, cuts to benefits, or even job loss. For them, it could be devastating.

There are just so many unknowns and differences of opinion when it comes to recessions and their impact on peoples’ lives. And we typically don’t have definitive knowledge of a recession until it’s come and gone.

 

The stock market and recessions

Is A Recession Imminent Are We Already In One?

 

Here is what I do know – stocks tend to do well coming out of a recession. And the stock market usually leads us out of recessions, as it is a “leading indicator.” Furthermore, the market can sometimes recover and begin its long trek upwards long before we’re even out of the recession woods.

Take a look at the chart above. Notice that the shaded vertical lines indicate historical recessions, and then stock market performance before and after those periods. In almost all scenarios, (and you’ll find similar data going back much farther) stocks have done very well after recessions, and sometimes even during recessions.

Though there are never any guarantees, there is at least a good amount of historical evidence that stocks do well after recessions. Note my circle and question mark on the chart – is that the next shaded vertical line (recession)? Maybe.

Will stocks do well and lead us out of this? All we can do is follow the evidence.

 

Concerns or questions about how your investment portfolio will hold up in the current market environment? Contact Financial Synergies today.

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Mike
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Shareholder | Chief Investment Officer

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