With the Federal Reserve’s action this week in cutting interests rates by one quarter of one percent, the word “recession” is back in the news as a possibility. There must be literally nothing else financially speaking to talk about. In the meantime, check out two really good slides.
The first slide (above) outlines the vast difference of:
- when a recession really occurs in the economy
- when markets anticipate the recession and react
- versus when the government (the NBER, National Bureau of Economic Research) “declares” a recession.
For example, in 2020, during the long coronavirus slowdown, the NBER said a recession lasted for just two months. The slowdown in reality occurred for over one YEAR, jobs were lost and businesses closed… and finally the economy recovered in mid-2021. Stock markets had declined in late 2019 and in early 2020, and then gradually rose all during 2020, anticipating the economy recovering – which came much later. Note stock markets versus the economy acting in different ways.
Similarly, back in 2007-2008 (see chart above) there was a recession that really started in December 2007 but was not “declared” until December 2008! Markets declined all through 2007 and then recovered dramatically in early 2009 in anticipation of the economic recovery.
The point of this information is to state that what we have seen in 2025 is market reaction (both UP and DOWN) to uncertainty – possibly indicating continued uncertainty and perhaps a recession – but no one knows for sure! And even if a recession does occur, no one knows for sure when markets may begin to anticipate an economic recovery. The Federal Reserve took steps this week to attempt to avoid economic recession.
This is where the second chart (below) comes in: the costs of missing the best week, best month, best 3 months or best 6 months in a long-term (20 year+) period of investing. Staying invested for longer periods of time – in a globally diversified portfolio with a plan – can prevent expensive short-term market-timing mistakes.
These are not easy times. Checking in with, or hearing from, your financial adviser on these data points can help keep a plan on track.
This material has been prepared for informational purposes only and is not intended to provide, and should not be relied upon for, tax, legal or accounting advice.