Learn the stock market › The economy and the stock market › Lesson 3 of 6
What is a recession?
What counts as a recession
A common rule of thumb in the news is two quarters in a row of shrinking GDP. It is not the official definition. In the US, the start and end are set by a committee at NBER, a private research organization. It calls it a recession when economic activity falls significantly, across the economy, for more than a few months. It looks at several measures, mainly income and jobs, not only GDP.
The committee waits until the data are reliable. So its announcement often comes long after a recession has begun, sometimes only after it has ended.
Stocks through 15 recessions
| Recession | S&P 500 during it | Lowest close | 12 months after the end |
|---|---|---|---|
| Aug 1929 – Mar 1933 | −82% | −86% (Jun 1932) | +82% |
| May 1937 – Jun 1938 | −29% | −48% (Mar 1938) | −6% |
| Feb 1945 – Oct 1945 | +16% | −6% (Mar 1945) | −11% |
| Nov 1948 – Oct 1949 | +9% | −8% (Jun 1949) | +22% |
| Jul 1953 – May 1954 | +18% | −8% (Sep 1953) | +30% |
| Aug 1957 – Apr 1958 | −4% | −14% (Oct 1957) | +33% |
| Apr 1960 – Feb 1961 | +17% | −4% (Oct 1960) | +10% |
| Dec 1969 – Nov 1970 | −5% | −25% (May 1970) | +8% |
| Nov 1973 – Mar 1975 | −13% | −35% (Oct 1974) | +23% |
| Jan 1980 – Jul 1980 | +7% | −14% (Mar 1980) | +8% |
| Jul 1981 – Nov 1982 | +6% | −22% (Aug 1982) | +20% |
| Jul 1990 – Mar 1991 | +5% | −17% (Oct 1990) | +8% |
| Mar 2001 – Nov 2001 | −2% | −33% (Oct 2002) | −18% |
| Dec 2007 – Jun 2009 | −37% | −54% (Mar 2009) | +12% |
| Feb 2020 – Apr 2020 | −1% | −24% (Mar 2020) | +44% |
The table runs from the last close of the month NBER names as the peak to the last close of the month it names as the trough. The lowest close is searched from the start to a year after the end. The index excludes dividends.
Three things stand out:
Stocks always fell below the starting level. The lowest close was below the level at the start in all 15. The median fall was 22%.
The low usually came before the end. In 14 of 15 the lowest close came before the recession was over, often months before. Stock prices reflect what buyers expect, while the economy is measured after the fact.
The exception is the recession that began in 2001, when the low came 11 months after the end.
The recession as a whole was not always bad for stocks. The S&P 500 fell between the start and the end in 8 of 15. A year after the end it stood higher than at the end in 12 of 15.
The latest recession ran from February 2020 to April 2020, 2 months, and the S&P 500 fell as much as 24.3%. It is in The 2020 stock market crash, and the long one from 2007 in The 2008 financial crisis. Every fall of at least 20% since 1928, recession or not, is in the study of all stock market crashes.
Test yourself
NBER announces that a recession has begun. What have stocks usually done by then?
Sources
- NBER, US Business Cycle Expansions and Contractions and Business Cycle Dating, read Nov 5, 2026.