Are we headed into a recession? With negative returns in several asset classes and discussion of the Fed’s interest rate campaign putting further pressure on the stock market, some economists are calling for a recession. But what does that actually mean? A common definition of a recession is two consecutive quarters of declining Gross Domestic Product (GDP). More broadly, recessions are considered as significant declines in economic activity lasting more than a few months.
When it comes to the future of your portfolio, it might not matter if we are officially in a recession. Unlike GDP, the stock market is forward looking. We have already experienced a drop in prices as investors have incorporated new information about inflation, the Fed, Ukraine and beyond. Buyers and sellers are reflecting their expectations about future cash flows, including any impact of an economic downturn, into their trades.
A century of economic cycles (See graphic here: Dimensional – Market Returns Through a Century of Recessions) teaches us that we may well be in one before economists make that call. But one of the best predictors of the economy is the stock market itself. Markets tend to fall in advance of recessions and start climbing earlier than the economy does. As the chart below shows, returns have often been positive while in a recession.
A recession is not a reason to sell. You can’t control what the Fed does or what happens to a sector’s profits. Rather, you can control how you react. The future is uncertain. Fortunately, lessons learned from the past should bring comfort to those who stick to their plan. To speak with our team of financial planners, please contact us.
Investment advisory services offered through Sikich Financial, an SEC Registered Investment Advisor. This is not a solicitation or recommendation to purchase or sell any investment product or service, and should not be relied upon as such.
This publication contains general information only and Sikich is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or any other professional advice or services. This publication is not a substitute for such professional advice or services, nor should you use it as a basis for any decision, action or omission that may affect you or your business. Before making any decision, taking any action or omitting an action that may affect you or your business, you should consult a qualified professional advisor. In addition, this publication may contain certain content generated by an artificial intelligence (AI) language model. You acknowledge that Sikich shall not be responsible for any loss sustained by you or any person who relies on this publication.
About the Author
Doug Mathey
Doug Mathey, CPA/PFS, MT, has more than 30 years of tax and financial experience working with business managers, corporate executives, retirees and high-net-worth individuals and their families.
He focuses on all areas of private and business wealth management, including tax consulting, planning, investment strategy, compliance and financial and estate planning. He also has in-depth experience with business succession plans and mergers and acquisitions.
Sign up for Insights
Join 14,000+ Business executives and decision makers.
Latest Insights
Data Management and Governance
Ways an Enterprise Data and AI Strategy Drives Exponential G...
October 23, 2024
Data Management and Governance
Ways an Enterprise Data and AI Strategy Drives Exponential G...
October 23, 2024
“The price of light is less than the cost of darkness” – Arthur C. Nielsen
This is one of my favorite quotes because it is simple and yet sa...
Ensuring Internet Redundancy with High-Availability Bigleaf ...
October 22, 2024
Information Technology
Ensuring Internet Redundancy with High-Availability Bigleaf ...
October 22, 2024
It almost goes without saying that uninterrupted internet connectivity is crucial for businesses to maintain productivity and ensure seamless operati...
Recent Judicial Developments on Foreign Reporting Obligation...
October 21, 2024
Tax
Recent Judicial Developments on Foreign Reporting Obligation...
October 21, 2024
Recent judicial rulings on foreign reporting obligations have sparked significant debate and raised concerns about potential legal inconsistencies. K...
Sikich CFO Ryan Spohn Featured on The Accounting Podcast
October 21, 2024
In The News
Sikich CFO Ryan Spohn Featured on The Accounting Podcast
October 21, 2024
Ryan Spohn was recently featured on The Accounting Podcast where he talked with host Blake Oliver, CPA, on revolutionizing accounting for the modern ...
Data has emerged as one of the most valuable assets for any organization. However, many companies struggle to harness its full potential. This can be...
Top 10 Ways to Simplify Operations in D365 Business Central ...
October 21, 2024
Dynamics 365>Dynamics 365 Business Central
Top 10 Ways to Simplify Operations in D365 Business Central ...
October 21, 2024
For Microsoft Dynamics 365 Business Central users, navigating day-to-day operational challenges can feel like an uphill battle. Whether keeping inven...
Internal Controls Assessments: Understanding Its Importance ...
October 18, 2024
Internal Audit
Internal Controls Assessments: Understanding Its Importance ...
October 18, 2024
Just as a home inspection evaluates a property's condition and identifies potential issues, an internal controls assessment thoroughly measures the e...
This website uses cookies so that we can provide you with the best user experience possible. Cookie information is stored in your browser and performs functions such as recognising you when you return to our website and helping our team to understand which sections of the website you find most interesting and useful.
Strictly Necessary Cookies
Strictly Necessary Cookie should be enabled at all times so that we can save your preferences for cookie settings.
If you disable this cookie, we will not be able to save your preferences. This means that every time you visit this website you will need to enable or disable cookies again.