Recessions and Markets
Dimensional Fund Advisors
Against the backdrop of heightened political uncertainty, potential trade wars, and lower consumer sentiment, investors may have concerns about whether the US could tip into a recession. The National Bureau of Economic Research identifies recessions using backward-looking data, so we won’t know we’re in a recession until after it’s begun.
Luckily for investors, markets are forward-looking and generally react before we see slower economic growth show up in the macroeconomic data. This also means that expected stock returns are positive, even when the economic outlook is weak. This is borne out in the historical data. One dollar invested at the start of a recession saw positive returns after three years in 12 out of 13 past recessions. The average of the three-year returns after the start of a recession was 43.2%, which is nearly identical to the 41.8% average return of all three-year periods from 1947 to 2024.1
exhibit 1
Growth of a Dollar for US Stocks over a 3-Year Period Beginning from the First Month of Recession
January 1926–March 2025
Past performance is not a guarantee of future results. Actual returns may be lower.
Source: Dimensional Fund Advisors
- Source: Fama/French Total US Market Research Index. The sample start date is based on quarterly US gross domestic product data, a key measure used to identify changes in economic activity across the business cycle that is first available starting in 1947.
The Dimensional and Fama/French indices represent academic concepts that may be used in portfolio construction and are not available for direct investment or for use as a benchmark.
This article is intended for educational and informational purposes only and does not constitute specific tax, legal, investment, or financial advice. The information provided is derived from sources believed to be reliable and is based on current tax laws and regulations as of the date of publication, which are subject to change. Aegis Wealth Management, LLC is not a law firm or accounting firm and does not give legal, accounting, or tax advice. Readers should consult with a qualified legal and/or tax professional to understand how these laws and regulations may apply to their unique circumstances. This material is not intended to be relied upon to avoid tax penalties under U.S. federal tax law. Past performance does not guarantee future results. All investing involves risk, including risk of loss.