In the 11 US recessions since 1950, the market's low came before the recession ended 10 times. The median gap was four months. Only the recession that began in March 2001 reached its low afterwards. That low came in February 2003.
Stocks during recessions did not all fall. Shares rose through five of the 11 and fell through six. We measured all 11 in real total return, which means with dividends reinvested and inflation stripped out.
What do stocks do during a recession? Stocks fell through six of the 11 recessions since 1950 and rose through five. The market's low came before the recession ended in 10 of the 11.
The median return through a recession was -4.5%.
The median fall from the pre-recession peak down to the market's low was 15.9%.
None of this was usable at the time, because a low is only visible once the market has climbed away from it.
The two measures this article uses
This article uses two measures. They answer different questions.
The return through the recession runs from the peak month to the recession's last month. It is what a holding did over the recession as a whole.
The fall to the low runs from the peak month down to the market's lowest month. It is deeper, because the market usually recovers some ground before the recession is declared over.
The 1973 to 1975 recession shows the gap. Its return through the recession was -24.2%. Its fall to the low was -39.1%.
What counts as a recession and who decides?
The National Bureau of Economic Research (NBER) decides. NBER picks a peak month and a trough month for each US recession. Our guide to what a recession is and who declares it covers the definition in full.
We took the recession dates from NBER and measured the market inside them. For the market, we used Robert Shiller's monthly S&P Composite series from Yale University.
The series is real total return. Inflation ran at double digits in the 1970s, so without that adjustment the 1973 to 1975 loss looks far smaller than it was. In nominal terms that recession's total return was -13.0%, against -24.2% in real terms, because consumer prices rose 14.8% over those 16 months.
We search for each low from the peak month until the month the market first regains its pre-recession level after the recession has ended. That window closes itself, so no fixed cut-off decides the answer.
The series ends in September 2024. The latest recession it covers ended in April 2020. We start in 1950, which gives 11 recessions.
What was the return through each recession?
Stocks rose through five and fell through six. The median return through a recession was -4.5%.
The largest rises came in the recessions that began in 1953 and 1960, at 23.5% and 13.6%. The recessions that began in 1980, 1981 and 1990 gained 4.4%, 7.8% and 2.3%.
The largest fall came in the 2007 to 2009 recession, at -36.6%. The 1973 to 1975 recession fell 24.2% and the 2020 recession fell 14.7%.
Chart 1 shows the return through each recession since 1950.
Source: Robert Shiller, Yale University; NBER recession dates
Five pale bars sit above the line in Chart 1 and six orange bars below it. The table gives all 11 recessions on both measures.
Peak | End | Return through the recession | Market's low | Fall to the low | Low before the end |
|---|---|---|---|---|---|
Jul 1953 | May 1954 | +23.5% | Sep 1953 | -3.6% | 8 months |
Aug 1957 | Apr 1958 | -6.9% | Nov 1957 | -11.4% | 5 months |
Apr 1960 | Feb 1961 | +13.6% | Oct 1960 | -2.9% | 4 months |
Dec 1969 | Nov 1970 | -8.8% | Jun 1970 | -17.8% | 5 months |
Nov 1973 | Mar 1975 | -24.2% | Dec 1974 | -39.1% | 3 months |
Jan 1980 | Jul 1980 | +4.4% | Apr 1980 | -9.6% | 3 months |
Jul 1981 | Nov 1982 | +7.8% | Jul 1982 | -15.7% | 4 months |
Jul 1990 | Mar 1991 | +2.3% | Oct 1990 | -15.9% | 5 months |
Mar 2001 | Nov 2001 | -4.5% | Feb 2003 | -30.0% | 15 months after |
Dec 2007 | Jun 2009 | -36.6% | Mar 2009 | -47.8% | 3 months |
Feb 2020 | Apr 2020 | -14.7% | Mar 2020 | -18.7% | 1 month |
Median | -4.5% | -15.9% | 4 months |
Real total return, with dividends reinvested and inflation stripped out. The low is the lowest month between the peak and the point the market first regained its pre-recession level after the recession had ended. Source: Robert Shiller, Yale University; NBER recession dates
When did the market hit its low?
Ten of the 11 recessions saw the market bottom while the recession was still running. Across all 11, including the exception, the median gap was four months. The largest was eight months, in the recession that ended in May 1954. The smallest was one month, in 2020.
Chart 2 shows the months between the market's low and the end of each recession. A positive figure means the low came first.
Source: Robert Shiller, Yale University; NBER recession dates
Ten bars in Chart 2 point up and one points down. That one is March 2001.
A low is only visible in hindsight. The market can be seen to have bottomed only once it has climbed away from the bottom, so none of this was usable while it was happening.
NBER adds a second lag of its own, because it dates recessions in arrears. Our guide to recession indicators covers the data available while a recession is under way.
How far did the market fall to its low?
The median fall to the low was 15.9%. The worst was 47.8%, from the December 2007 peak down to the March 2009 low. The 1973 to 1975 recession fell 39.1%, to a low in December 1974.
The mildest falls were 2.9% in the recession that began in 1960 and 3.6% in the one that began in 1953. Both of those recessions also ended with stocks higher.
Chart 3 shows the fall to the low in each recession.
Source: Robert Shiller, Yale University; NBER recession dates
Chart 3 puts the 2007 and 1973 falls well clear of the rest. Eight of the 11 falls stayed inside 20%.
Why did the March 2001 recession go the other way?
The recession ran from March 2001 to November 2001. The market kept falling after it ended. Its low came in February 2003, 15 months later. From the peak to that low the market fell 30.0%.
The return through the recession itself was -4.5%. That figure is also the median across all 11 recessions. The two are a coincidence.
Eleven recessions is a small sample. One exception in 11 shows the pattern can break. The next recession need not resemble any of them.
How long did stocks take to get back?
We measured the months from each low until the market regained its pre-recession level. Eight of the 11 recoveries finished within eight months of the low. The median was five months, but three cases took 33, 46 and 97 months.
The 97 months followed the December 1974 low. The 46 months followed the March 2009 low. The 33 months followed the February 2003 low.
Our article on how ETFs performed in a crisis gives the fund view of crisis periods.
In the 11 recessions since 1950, stocks usually fell to a low partway through, then recovered some of it before the recession was declared over. Whether the next one follows that pattern, we cannot say.
Appendix: what monthly figures hide
Shiller's monthly figures are averages of daily closes within each month, so they understate fast, deep falls. The depths above are therefore smaller than the worst daily falls.
We measured the gap on SPY (the S&P 500 exchange-traded fund, or ETF). From February to April 2020, the worst daily fall was 33.7%. The monthly-average equivalent was 18.9%. Shiller's figure for the same fall was 18.7%, about 0.2 points away. That gap is the inflation adjustment.
From October 2007 to March 2009, the worst daily fall was 55.2%. The monthly-average equivalent was 49.0%.
The averaging leaves the 10 of 11 result standing. We tested that. On the three recessions SPY covers end to end, daily closes and monthly averages put the low in the same month twice: March 2009 for the 2007 to 2009 recession, then March 2020 for 2020.
They disagree on the third. For the March 2001 recession, daily closes put the low in October 2002, while monthly averages put it in February 2003.
The low still lands after the recession ended on either basis, so 2001 stays the exception. The size of its gap moves: 11 months on daily closes against 15 on monthly averages. The figure in the table is the monthly one, because the whole series is monthly.
The eight earlier recessions have no daily series to test against, so the check covers three of the 11.
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Common questions about stocks during recessions
Do stocks always fall during a recession?
Stocks do not always fall during a recession. Stocks rose through five of the 11 recessions since 1950 and fell through six, measured with dividends reinvested and inflation stripped out. The median return through a recession was -4.5%. The recession that began in 1953 gained 23.5%, while the 2007 to 2009 recession lost 36.6%.
When does the stock market bottom during a recession?
The market usually bottoms before the recession ends. In 10 of the 11 recessions since 1950, the low came first, a median of four months before the end. Only the March 2001 recession bottomed afterwards, in February 2003. A low is visible only in hindsight, so none of this was usable at the time.
How long does it take stocks to recover after a recession?
The median time back to the pre-recession level was five months from the market's low, but three cases took 33, 46 and 97 months. Eight of the 11 recoveries finished within eight months of the low. Eleven recessions is a small sample. The next need not resemble any.
How far do stocks fall in a recession?
Stocks fell a median of 15.9% from the pre-recession peak to the market's low in the 11 recessions since 1950. The worst fall was 47.8%, from the December 2007 peak. Monthly averages understate fast falls: in 2020, the worst daily fall was 33.7%, against 18.9% on monthly averages.
DISCLAIMER: This article is strictly educational. Any information or analysis in this note is not an offer to sell or the solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice and nor should it be relied upon to make investment decisions. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note's date of publication and are subject to change without notice.
