I have many clients that ask, “Do you think we are heading into a recession or are we in one?” And I always shrug my shoulders and say maybe, maybe not, but it shouldn’t matter for you if we are planning correctly for your personal situation.

The textbook answer for a recession is two quarters of declining gross domestic product (GDP). However, it’s technically when 8 economists from the National Bureau for Economic Research call it a recession and they call it when we are out. Markets may not follow their calls in lockstep due to this. So, just because a recession may be called, it may not mean as much as it seems at that point in time. Recessions are going to happen throughout our lifetimes. It’s just part of the way our economy works. Therefore, we shouldn’t be surprised that they are happening and we should be planning realistically and well for your future.

If you want to read more on things to consider during a recession, you can review two articles I wrote here:

What Should You Consider During a Market Correction or Recession? (Part I)

What Should You Consider During a Market Correction or Recession? (Part II)

The below information gives a good framework for processing this kind of information.

Content below is courtesy of Dimensional Fund Advisors

US RECESSION AND STOCK PERFORMANCE DURING THE GLOBAL FINANCIAL CRISIS(1) S&P 500 Index, January 2007–December 2010

Some investors may worry about the stock market sinking after a recession is officially announced. But history shows that markets incorporate expectations ahead of economic reports.

• The global financial crisis offers a lesson in the forward-looking nature of the stock market. The US recession spanned from December 2007 to May 2009, as indicated by the shaded area in the chart.

• But the official “in recession” announcement came in December 2008—a year after the recession had started. By then, stock prices had already dropped more than 40%,(2) reflecting expectations of how the slowing economy would affect company profits.

• Although the recession ended in May 2009, the “end of recession” announcement came 16 months later (September 2010). US stocks had started rebounding before the recession was over and climbed through the official announcement.

The market is constantly processing new information, pricing in expectations for companies and the economy. Investors who look beyond after-the-fact headlines and stick to a plan may be better positioned for longterm success.

(1.) Start and end dates of US recessions, along with announcement dates, are from the National Bureau of Economic Research (NBER). nber.org/research/data/us-business-cycle-expansions-and-contractions and nber.org/research/business-cycle-dating/business-cycle-dating-committee-announcements

(2.) Decline based on the S&P 500 Index’s price difference between the actual start of the recession in December 2007 and the official “in recession” announcement 12 months later.

Past performance is no guarantee of future results. Investing risks include loss of principal and fluctuating value. There is no guarantee an investment strategy will be successful. Indices are not available for direct investment. Index returns are not representative of actual portfolios and do not reflect costs and fees associated with an actual investment.

In US dollars. S&P data © 2022 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. Dimensional Fund Advisors LP is an investment advisor registered with the Securities and Exchange Commission. Investment products:

• Not FDIC Insured • Not Bank Guaranteed • May Lose Value Dimensional Fund Advisors does not have any bank affiliates.