Weekly Buzz: 📉 Returns during a recession aren’t as bad as you think

10 November 2023

Over the past century, recessions haven’t been that bad for investment returns – yes, you read that right. In the two years following the start of a recession, stocks actually tend to perform pretty well, on average showing a solid annualised return of 8.8%.

What does the data say?

Now, we aren’t saying that a recession will happen soon (it’s more of a stagflation situation at the moment). But the data here is rather interesting, showing that, on average, returns during a recession might actually be better than you think.

Think about it this way: if you invested $10,000 at the start of a recession, you’d still have roughly $11,664 after two years, on average. Simply put, it’s safe to say that history suggests sticking with stocks often pays off.

And remember that the markets are savvy – stock prices drop even before a recession begins. In the US, the stock market peaks, on average, about 5 months before a recession starts. It’s tempting to play it safe, pulling your money out of the market before a recession, but timing the market tends to be a losing game.

What’s the takeaway here?

It’s natural to worry about economic downturns, and about how it might affect your investments. But recessions are just one part of the overall market cycle (find our Jargon Buster below for a quick runthrough!).

When a recession runs its course, economies usually start expanding again – after rain often comes sunshine. If you were to zoom out, you’d see that most economies tend to grow over time, with each peak reaching a higher high than the last.

As always, a well-diversified portfolio, like any of our General Investing portfolios, is probably your best bet, recession or not. Plus, our General Investing portfolios take into account current economic conditions – leaning more into defensive assets in the face of market uncertainty.

📰 In Other News: A stutter in Asia's manufacturing step

According to data released last week, manufacturing activity across Asia slumped in October. Several Southeast Asian countries and their industries have been squeezed by rising costs and lagging orders, according to S&P Global’s manufacturing purchasing managers’ indexes (PMI).

Japan and South Korea also had little to show off: they scored 48.7 and 49.8 respectively in their PMIs, which is still below the 50-mark that indicates expansion in the manufacturing sector.

Asia’s usually the powerhouse of manufacturing, but lowered demand from the US and Europe has made business difficult. The rest of the world will feel the effects if Asia runs out of steam, and higher energy prices aren’t helping matters either.

And while China’s slower recovery is still making investors nervous, its government isn’t just sitting idly by – so far it’s taking measured steps to support its economy. If continued supportive policies yield results for the world’s second largest economy, it's likely to also bring about positive ripple effects for the rest of the Asian economies.

This article was written in collaboration with Finimize.

🎓Jargon Buster: Market cycles

Market cycles are like an economic Ferris wheel. When the economy is on the upswing, it’s like being on a seat that’s rising to the top – businesses grow and jobs are plentiful. Then you reach the peak, where things can’t go much higher. So, we head into a downturn, or a recession. But once you’re at the bottom, you’re looking at a climb up once again.

These cycles are normal, and they make the economic world go round – quite literally!


Share this
  • linkedin
  • facebook
  • twitter
  • email

Want more?

We thought you might.Join the hundreds of thousands of people who are taking control of their personal finances and investments with tips and market insights delivered straight to their inboxes.