It seems recessionary fears are back in the media cycle (although that is shifting with the impeachment storylines). Economists are placing the likelihood of a recession in the next twelve months at 35%, which is the highest level since the financial crisis. While this can initially be alarming, let's not forget that 65% think it won't happen. A resolution to the China trade war would likely reduce these odds.
It feels like recessions should also mean severe market drops. History tells us otherwise.
I suggest reading this post showing some historical data regarding the S&P 500 and recessions. Some of the stats Ben points out include...
Dating back to the Great Depression, we have experienced fourteen official recessions. The S&P 500 yielded a positive return during seven of those recessions.
One year after these recessions, the S&P 500 yielded a positive return ten times
Three years following these recessions, the S&P yielded positive returns all fourteen times
What is there to learn from these statistics?
First, it drives home the need to take your time horizon into account when investing. If your investment time frame for a chunk of your money is less than three years then you should probably be in something fairly stable. Over 3 years and adding incremental risk to your investments can make a lot of sense.
The second lesson is around market timing. Often a recessionary cycle is almost over by the time it is officially announced. This is one reason why trying to time getting in and out of the market based on economical cycles is a loser's game.
Lastly, tune out the noise. If your portfolio prudently is aligned with your plan, your risk and your time horizon then take solace in these statistics. The noise can make things feel worse than they are.