Recession and Stock Market Crash

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recessions and stock market crashes
recession and stock market crashes

Recession definition

What is a recession? When economic activity declines, and the change in gross domestic product (GDP) is negative for two successive quarters, economists consider it a recession.

What is GDP? Gross domestic product (GDP) is the sum of the following components:

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  • Private Consumer Spending
  • Government Expenditures
  • Investment on Capital equipment, housing, inventories
  • Net Exports (total exports – total imports)
GDP definition

Recession vs Depression

There’s no textbook definition that separates a recession from a depression. Generally speaking, a more severe form of recession is referred to as a depression. When a recession spans years instead of months and impacts the global economy rather than a particular country, a recession is considered a depression.

So far there has been one recorded depression in the US, starting in 1929 and ending in 1939. It lasted a decade, with unemployment hitting 25% at one point. A notable event was the ‘Black Thursday’ on Oct 24, 1929 which sent the stock market crashing, followed by reduced consumer spending, home foreclosures, and job losses, painting a grim economic outlook for the country.

Most recent recession: Recession in 2020

In the first two quarters of the year 2020, the US GDP saw a decline from previous quarters, -5% in Q1 and -31.4% in Q2. The declines were primarily driven by the disruption in trade activities due to the COVID-19 restrictions such as lockdowns, reduced business activity, cross-border travel bans, reduced international trade etc.

Recession of 2020

[update] The Real GDP change reported (advance estimate) on Oct 29, 2020 for 2020 Q3 is +33.1% according to https://fred.stlouisfed.org/

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Stock Market Definitions

Recession and stock market crashes are not really the same. Here’s we’ll discuss the most common terms used in reference to stock market declines.

Stock market correction

When a major index (S&P 500 or Dow Jones Industrial Average) falls more than 10% from its recent peak within the rolling 52-week period, the decline is considered a stock market correction.

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Stock market crash

When the stock market correction (i.e. S&P 500 or Dow Index falls by 10% or more) happens in a short span of time – usually a day or a few days, it is considered a stock market crash.

Bear Market

When a major stock index (such as S&P 500 or Dow Jones Industrial Average) declines by 20% from its most recent peak within the rolling 52-week period, it is considered a bear market. The onset of a bear market practically ends the ‘bull market’

Bull Market

When the stock index rises by 20% from its most recent low (mostly after a bear market), it is considered a bull market. The bull market continues until it experiences a bear market again i.e. the stock index drops again by 20%.

List of bear markets in the US

Here’s a list of bear markets identified by 20%+ declines in S&P 500 since the Great Depression in 1929.

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Bear MarketOnset of Bear MarketDurationS&P 500 Decline
Great DepressionSep-2933 months86.20%
Bear 1937Mar-3762 months60.00%
1946: End of Post WW2 Demand SurgeMay-4637 months29.60%
Bear 1956Aug-5615 months21.50%
Cuban Missile CrisisDec-616 months28.00%
Bear 1966Feb-668 months36.10%
Vietnam WarNov-6818 months36.10%
1973: Oil CrisisJan-7321 months48.20%
Volcker Bear: StagflationNov-8020 months27.10%
1987: Fear of Dollar DevaluationAug-873 months33.50%
Bear 1990Jul-903 months19.90%
Dot Com Bubble BurstMar-0030 months49.10%
Great Recession- Housing market collapseOct-0717 months56.40%
Covid -19 PandemicFeb-201 month33.90%
stock market crash
stock market crashes and bear markets
Bear MarketOnset of Bear MarketDurationS&P 500 Decline
Great DepressionSeptember 192933 months86.2%
Bear 1937March 193762 months60.0%
1946: End of Post WW2 Demand SurgeMay 194637 months29.6%
Bear 1956August 195615  months21.5%
Cuban Missile CrisisDecember 19616 months28.0%
Bear 1966February 19668 months36.1%
Vietnam WarNovember 196818 months36.1%
1973: Oil CrisisJanuary 197321 months48.2%
Volcker Bear: StagflationNovember 198020 months27.1%
1987: Fear of Dollar DevaluationAugust 19873 months33.5%
Bear 1990July 19903 months19.9%
Dot Com Bubble BurstMarch 200030 months49.1%
Great Recession- Housing market collapseOctober 200717 months56.4%
Covid -19 PandemicFebruary 20201 month33.9%

Investing during market crashes

For investors with a long investing horizon, it has always proved beneficial to stay invested in the market, and if possible, to continue investing during a market declines. A lot of panic selling occurs during the market crashes and the stocks tend to be ‘oversold’ to a point where it becomes a great bargain for investors to buy again.

However, investors must note that some individual stocks may never recover after a crash based on its lost earning power due to some company specific factors. As always, while buying during a crash, it’s important to stay diversified and not put all eggs in one basket. Generally speaking, broad market index funds are a safer bet than individual stocks.


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list of all stock market crashes

Updated: September 24, 2021 by FinPins

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