Larger companies tend to have more stable earnings, diversified business operations, and the financial wherewithal to sustain their operations even during recessions. Growth stocks were hit hard in the tech-stock correction in the early 2000s, which coincided with a brief recessionary period in 2001.įrom a style perspective, large has generally been better than small during periods of economic weakness. But growth stocks haven’t fared well during every recessionary period. Companies that have growth-oriented stocks typically have higher earnings growth, cleaner balance sheets, and better profitability-all traits that often help them hold up better than companies with cheaper stock prices during recessionary periods. As shown in the table below, growth stocks have typically held up better during recessionary periods. equity fund categories as a proxy for measuring investment style. But the yellow metal had a relatively anemic showing during recessions in the early 1980s and early 1990s returns were negative after inflation. Gold has also been a winning asset class during recessionary periods, with positive returns during the eight most recent recessions since 1993. Because of their higher level of sensitivity to interest rates, long-term bonds have historically fared best during recessions, although intermediate-term bonds and cash have also been pretty resilient. In addition, the Federal Reserve often cuts interest rates in an attempt to stimulate economic growth, also resulting in higher bond prices. Investors often seek shelter in lower-risk assets during periods of economic distress, which helps support bond prices. On the flip side, bonds have been the best place to be in most previous recessions. Some of the worst recent results were during the global financial crisis, when stocks lost an annualized 24% between late 2007 and mid-2009. As companies produce less favourable results, their stock prices usually suffer.Īs a result, stocks had negative returns in most (but not all) previous recessions dating back to the Great Depression. The reason is simple: Recessions happen when there’s a decline in economic activity, which is usually accompanied by weaker trends in revenue and earnings growth. ![]() (Note: For most of this analysis, I’ll focus on the past four or five most recent recessions because performance data is harder to come by for earlier periods.) Asset Classesįrom an asset-class perspective, stocks are usually one of the worst places to be during a recession. In this article, I’ll look at investing during a recession from multiple angles, including asset classes, factors, and sectors. That said, looking at which types of investments have historically fared best during economic downturns can help you limit some of the damage. And in many cases, it’s often only clear that a recession has happened after the fact, or after the market has already started reacting to slower economic growth. It’s impossible to predict the timing or severity of a potential recession. ![]() ![]() Historically, recessions (generally defined as at least two consecutive quarters of declining growth in gross domestic product) have occurred about once every five to 10 years, although the length of time between recessionary periods varies. The economy moves in cycles, with periods of economic strength followed by contractions and vice versa. But even if an economic slowdown isn’t imminent, there will be one eventually.
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