Chart of the Day: Positive Returns During Recessions

Today’s Chart of the Day and commentary is from Angie Parsons, my colleague and fellow Portfolio Manager. 

The chart from BlackRock shows stock returns during recessions dating back to 1929. Surprisingly, the average return is positive and increases to 25% the next year afterwards. This highlights that although market downturns sometimes coincide with recessions, the stock market is not a good indicator of the current state of the economy. The reason is the stock market often looks past the short-term and instead looks well into the future. Therefore, more often than not, the stock market recovers faster than the economy.

Though recessions seem to be long, the average length of a recession is roughly one year vs. expansionary periods of roughly six years. This means that though they happen, they generally don’t happen for long and if you have the right bond allocation to protect yourself, they often become blips in our memory.