The specter of a recession has hovered over American consumers for what feels like an eternity, an economic saga unfolding since the early days of the pandemic. As of a May 27 report from J.P. Morgan, the odds of a recession striking in 2025 hover around 40%, down from forecasts a month earlier that pegged the likelihood at over 50%.
If a recession does arrive, how will we recognize it? When might it end? And what will be the repercussions for Wall Street? Let’s dive into insights from experts at Investopedia, Motley Fool, Fidelity, NerdWallet, and others to get a clearer picture.
Recessions are often shorter than they feel
Economic downturns drag on in the public imagination, with waves of layoffs, shaky stock markets, and tightening household budgets stretching seemingly without end. However, historical data tells a different story. Since the Civil War era, the average recession has lasted roughly 17 months. Post-World War II, that average has shrunk further—to about 10 months.
Caleb Silver, editor in chief at Investopedia, explains this trend: “Recessions have gotten shorter because policymakers, the Federal Reserve, and the Treasury have gotten more inventive. Whether it’s dropping interest rates to zero or injecting stimulus checks directly into households, these measures help curb the downturn.”
The lasting sting of a recession mostly comes from its toll on jobs, markets, and family finances. Niv Persaud, a certified financial planner in Atlanta, points out that “while the recession might last 10 months, recovering fully could take much longer.”
Recessions are part of America’s natural economic rhythm—a boom-and-bust cycle. But here’s the silver lining: booms typically outlast busts. Since WWII, economic expansions have run for nearly five years on average.
You often don’t know when a recession begins
The National Bureau of Economic Research (NBER) defines a recession as “a significant decline in economic activity across the economy, lasting more than a few months.” In practice, this means we usually find out about a recession only after it’s been underway for several months. “You don’t usually know you’re in a recession until six months after it starts,” says Denise Chisholm, Fidelity’s director of quantitative market strategy.
The NBER looks at various economic indicators—purchasing power, employment, industrial output, retail sales, GDP—before officially declaring a recession. Typically, these numbers have to fall for some time before the bureau sounds the alarm. But exceptions exist: the COVID-19 recession lasted just two months, a record short downturn.
Stocks don’t always drop during recessions
For investors, it would be ideal if stock prices fell sharply right when a recession hits. But the market is rarely that straightforward.
Robert Brokamp, senior adviser at Motley Fool, explains, “The stock market is a leading indicator—it anticipates recessions months ahead.” Generally, stocks start falling about six months before a recession begins and often start climbing again six months before the recession ends.
Given that recessions are confirmed only after months of economic decline, timing investments becomes tricky. “Stocks often hit their lowest point midway through a recession,” Chisholm adds. This means that by the time you learn a recession is happening, stocks may have already bottomed out.
The market and economy don’t always move in sync; sometimes, they even diverge. Silver from Investopedia notes, “If we enter a recession, the stock market might not drop as much as you expect.”
The biggest risk during a recession is job loss
While investors worry about market dips, history shows the market will eventually recover. For example, after the Great Recession in 2008, the S&P 500 recouped its losses by 2013.
If you’re retired and relying on savings, recessions can threaten your financial security. For most others, recovery is possible with time.
The real threat? Losing your job. During the Great Recession, unemployment peaked at 10%, and in the short COVID-19 downturn, it spiked to 14.7%. Businesses reduce staff during recessions because demand falls, meaning fewer goods and services are produced and sold.
Brokamp warns, “If you’re still employed and not near retirement, job security is the primary concern.”
Recessions can be an opportunity to buy stocks
The old investment wisdom is to buy low and sell high, but knowing when to buy or sell is often the hardest part.
Selling stocks during a recession usually isn’t advisable, as markets are volatile and unpredictable. Sam Taube from NerdWallet says, “Trying to protect your portfolio by selling before or during a recession is almost impossible to time correctly.”
Buying stocks during a downturn, however, can be a savvy move. Stock indexes often fall 10% to 20% or more below their previous highs during recessions, offering a chance to buy at a discount.
“History shows that the market recovers,” says Brokamp. “If you can buy stocks at a lower price during a recession, you’ll likely be glad you did.” Just remember, it might take months or years for the market to fully rebound, so this strategy suits investors who don’t need quick access to their money.
