Fidelity analyst explains what happens to stocks in a recession
Here's what you should know about how a recession affects stocks.
This year, there has been considerable debate over whether the U.S. economy will experience stagflation or, worse, a recession.
Those who believe the economy faces a reckoning point to negative GDP growth, increasing job losses, and the effects of the trade war on inflation and supply chains. Others point to a historically low unemployment rate, wages outpacing inflation, and supporting spending as reasons we'll avoid a recession.
Related: Goldman Sachs unveils tariffs prediction, recession forecast
It’s undeniably hard to predict what will happen to the economy next. Still, investors are right to worry about a recession because slowing sales and profits are big headwinds to corporate America. Given that stock prices follow earnings over time, the S&P 500's returns during a recession are unsurprisingly lackluster, according to Fidelity Investments.
However — there is one silver lining about recessions that investors should remember.
What is a recession and is one likely in 2025?
Gross domestic product is a measure of economic activity, and a recession is commonly described as two or more consecutive quarters of contracting GDP. However, that’s not always the case.
The official declaration of a recession is made by the National Bureau of Economic Research, and it doesn’t always stick to the rule of two quarters of economic contraction.
