Recession! Of all the dirty words I’ve heard, that must be the worst of them. Ugh! When you hear that word, what do you think? If I have to guess, your mind immediately thinks of the Great Recession. I know mine does, and when I think of the Great Recession, I think of our country being the closest it had been in over 80 years to the Great Depression. There was high unemployment, people foreclosing on their homes, an ever-dropping stock market and what seemed like nothing but bad news. In addition, the Great Recession came only 7 years off the heels of another bad recession in 2001/2002. It felt like things might never get better.
So, what really is a recession? A recession is a term that refers to a significant decline in general economic activity. Typically, economists identify a recession when the country has experienced two consecutive quarters of negative Gross Domestic Product (GDP). GDP is the total value of goods and services provided in a year. These types of economic declines also happen in tandem with other indicators such as rising unemployment and falling retail sales (what you as a consumer are spending in the economy). Economist also look at many other indicators to give them a hint as to what the overall health of the economy looks like.
Many times when the country experiences a recession, we also experience a bear market (a bear market is a decline of 20% or more), but that is not always the case. Since, 1942, the country has experienced 13 recessions, including the brief, yet real, recession of 2020 during the start of the COVID pandemic. Five of these recessions were during Bull (or Up) markets. In addition, less than half of them lasted more than a year. Some of the stock market declines were significant during these times, as in 2008/2009, and some of them were during times of market rebounds.* In other words, just because our country is in a recession, it doesn’t mean we are going to be in a bear market.
Here is what is important to remember: the media loves a good story and fear sells. Our recent recessions have been scary but they all aren’t like that. It is possible for us to have a recession and come out of it, and not even know until months later. A recession is an economic term, so rather than focusing on that word….that one dirty word….let’s focus on what your goals are. This year has been a very volatile year so far in the stock market and bond market. People can make predictions all day long but that doesn’t mean they will be right. Even a broken clock is right twice a day. Instead, let’s discuss what your needs are and plan for those. Are you taking withdrawals? Let’s make sure we set money aside for those needs. Are you retiring next year? Let’s make sure we are well positioned for that change. Are you retiring in 20 or more years? Is there something we can buy cheap now, that will benefit your goals down the road? Take the fear out of recession and focus on what’s important: You!
*Source: Source: First Trust Advisors L.P.,Bloomberg, March 2022
– Paul Reilly | Chairman and CEO, Raymond James Financial