Do stocks do well in a recession?

Do stocks do well in a recession?

Recessions raise a core question for investors: do stocks do well in a recession, or should portfolios move to safety? This article examines how broad equity markets and individual stocks typically perform during economic downturns, summarizes historical evidence (with U.S. equity emphasis), explains the mechanisms that drive stock behavior, and outlines investor strategies and sector differences. Readers will gain historical context, sector-level takeaways, practical portfolio rules, and sources to consult for deeper study. Explore how to think about recession risk and which portfolio steps help manage it — including relevant reminders to use Bitget tools for account needs and Bitget Wallet for custody when relevant.

(As of January 15, 2026, according to PA Wire reporting by Daniel Leal-Olivas, UK data showed a sharp rise in credit-card defaults and weakening mortgage demand — a timely reminder that household stress can presage or amplify recessions.)

Definition and context

What is a recession

A recession is a sustained period of falling economic activity across the economy. Common operational definitions include two consecutive quarters of falling real GDP, but official U.S. recession dating is done by the National Bureau of Economic Research (NBER), which looks at a range of indicators such as employment, real income, industrial production, and sales. Recessions matter because they typically bring falling corporate revenues, higher job losses, and increased default risk — all factors that influence equity prices and investor decisions.

Why stock performance during recessions is an important question

Investors ask "do stocks do well in a recession" because market prices reflect future expectations, not only current output. Economic activity metrics (GDP, unemployment) describe what is happening now or in recent months. Equity prices price expected future earnings, discount rates, and investor sentiment. That forward-looking nature means markets can move ahead of official recession dates and that returns during recessions vary widely by sector, company quality, and valuation.

Historical evidence: how stocks have performed in past recessions

Overview of long-term empirical patterns

Historically, broad stock markets have tended to recover after recessions and have delivered positive long-term returns despite periodic deep drawdowns. Across many recessions, some produced large index losses while others saw smaller declines or even positive returns over the recession period. The outcomes are statistically variable: recessions often produce elevated volatility and negative drawdowns at the peak-to-trough stage, but recoveries can begin before the official end of the recession as market participants look ahead.

Investors asking "do stocks do well in a recession" should expect heterogeneity: the broad class of equities has done well over multi-year horizons, but performance during recessions depends on timing, sector composition, and monetary and fiscal responses.

Timeline and examples of notable recessions

• Great Depression (1929–1933): Equity markets collapsed in 1929 and the early 1930s. The U.S. stock market lost the majority of its value from peak to trough, and the recovery took many years and was shaped by deep structural economic changes.

• Early-2000s / Dot-com (2000–2002): The technology-heavy NASDAQ experienced extreme losses as valuations collapsed. The S&P 500 declined materially but the eventual recovery favored sectors that benefited from steady earnings and more attractive valuations.

• Great Recession (2007–2009): Triggered by a financial crisis tied to mortgage markets and bank leverage. The S&P 500 fell roughly 57% from peak to trough (late 2007 to March 2009). Recovery began in 2009 after large monetary and fiscal policy responses, but bank and cyclical stocks were among the worst hit.

• COVID‑19 recession (2020): A sharp, externally driven economic shutdown produced a record-fast GDP decline and an exceptionally rapid market rebound. The S&P 500 fell about 34% in weeks, then recovered to new highs within months as policy support and the concentrated nature of the shock left some sectors (digital services, software) prospering.

Index-level performance and recovery patterns

Typical peak-to-trough index declines in U.S. recessions have ranged from moderate (10–20%) to severe (50%+). Recoveries vary: some markets begin to recover while the economy is still contracting because investors price a turnaround in earnings or policy relief. The COVID‑19 episode is a stark example where markets recovered faster than economic indicators due to decisive fiscal and monetary support plus rapidly improving forward-looking earnings expectations for certain sectors.

Why stock outcomes vary across recessions

Forward-looking nature of markets

Markets price expectations for future cash flows and discount rates. When investors expect earnings to rebound or central banks to lower rates, prices can climb even if current GDP remains weak. Conversely, when earnings downgrades and pessimism compound, markets can fall ahead of economic data that confirm the downturn.

Corporate earnings and balance-sheet sensitivity

Companies with stable, recurring revenues and strong balance sheets are more resilient. Firms with high leverage, cyclical sales, and vulnerable cash flow are more exposed to recessions. Earnings downgrades during recessions are the primary driver of stock price declines; the depth of earnings deterioration explains much of the cross-sectional variation in returns between companies and sectors.

Nature and cause of the recession matter

Recessions triggered by financial-sector failures, asset bubbles, supply shocks, or a public-health shock produce different winners and losers. A financial crisis typically punishes banks, credit-dependent firms, and cyclicals; a pandemic can crush travel and hospitality while boosting digital services and pharmaceuticals. That heterogeneity is a central reason why the short answer to "do stocks do well in a recession" is: it depends on the recession and on which stocks or sectors you hold.

Sector and stock-level differences

Defensive vs. cyclical sectors

• Defensive sectors (consumer staples, healthcare, utilities) sell products and services that households need regardless of the macro cycle. These sectors historically show smaller declines in recessions and sometimes outperform cyclicals on a relative basis.

• Cyclical sectors (consumer discretionary, industrials, materials, energy) depend strongly on economic activity and typically see larger earnings declines and share-price weakness during recessions.

Examples of recession-resilient companies and sectors

Recession-resilient performers often include discount retailers, healthcare service providers, staple-food producers, utilities, and subscription businesses with recurring revenue. For example, in past downturns discount grocers and certain healthcare companies held up relatively well because demand was more stable. During COVID‑19, businesses providing digital services, cloud and remote-work tools, and some large-cap technology names outperformed even amid a deep economic contraction.

Growth vs. value and quality characteristics

Value stocks (lower valuations relative to fundamentals) historically have sometimes held up or outperformed in recessions, particularly after price declines make valuations more attractive. High-quality stocks — firms with strong balance sheets, consistent free-cash-flow generation, and durable competitive advantages — often show better downside protection. However, exceptions exist: the COVID‑19 downturn favored some growth names due to structural demand shifts, showing that style performance can be regime-dependent.

Investment strategies and investor behavior in recessions

Buy-and-hold and long-term perspective

A disciplined long-term approach benefits from the historical propensity of equities to recover after recessions. Remaining invested avoids the risk of missing the market's strongest rebound days, which often occur early in recoveries.

Dollar-cost averaging and regular contributions

Systematic investing (dollar-cost averaging) reduces timing risk and buys more shares when prices fall. For long-horizon investors, making regular contributions through market cycles can meaningfully improve compounded returns and reduce stress related to attempting to time the market bottom.

Recession-focused tactical approaches

Tactical ideas include overweighting defensive sectors, favoring companies with low leverage and strong liquidity, and targeting dividend growers. Some research (for example, firm-level and asset-allocation papers from institutions like GMO) highlights that value exposures can offer attractively priced opportunities after recessions, but tactical moves require discipline and attention to costs and taxes.

Hedging and alternatives

Investors may use bonds, cash, options, or alternative assets (e.g., gold) to hedge downside risk. These tools come with trade-offs: hedges cost money, reduce upside participation, and can be complex to manage. For retail investors, keeping a diversified bond sleeve and a cash buffer is often a practical hedge.

Non-investment considerations (emergency fund, debt)

Before increasing equity exposure, ensure household resilience: an emergency fund covering 3–6 months of essential expenses, paying down high-cost debt, and matching risk to time horizon are essential. Rising credit-card defaults and lower mortgage demand — as reported in recent UK data — underscore how household balance-sheet stress can feed into broader economic weakness and investment risk. As of January 15, 2026, PA Wire reported an increase in UK credit-card defaults and a sharp fall in mortgage demand, highlighting household vulnerability that can matter to markets.

What research and major financial institutions say

Summary of major source findings

Major investment publishers and wealth managers generally agree that recessions vary in depth and that market recoveries are common, though timing and sector leadership differ. Firms like Fidelity, Investopedia summaries, Motley Fool research, and advisors at Morningstar tend to emphasize staying diversified, focusing on quality, and maintaining long-term discipline. Research groups like GMO have published detailed analyses on value and quality behavior across recessions.

Notable empirical results and caveats

Key empirical points include: several recessions produced positive index returns over the official recession period; the market often starts recovering before the recession ends; and sector or factor performance can invert depending on the recession's nature (for instance, the growth/value split during COVID‑19). Importantly, past patterns are informative but not definitive: every downturn is different.

Common misconceptions

Recession always equals bear market

Recessions and bear markets frequently coincide, but they are distinct. A recession is an economic contraction; a bear market is a 20%+ decline in market prices. Markets can fall without a recession and can be positive during some recessionary periods.

All stocks decline equally

Not all stocks move the same way. Sectoral exposure, leverage, revenue stability, and valuation result in wide dispersion in returns. Defensive and high-quality companies often fare better than cyclical, highly leveraged firms.

Market timing is a reliable protection strategy

Market timing — trying to sell before declines and re-enter at the bottom — has historically proven difficult. Missing even a handful of the best rebound days can dramatically lower long-term returns. A disciplined plan often outperforms ad-hoc timing.

Practical guidance for investors

Assessing risk tolerance and investment horizon

Start by clearly defining your time horizon, liquidity needs, and tolerance for drawdowns. Longer horizons generally allow higher equity allocations because there is time to recover from downturns. Short-term liquidity needs should be met with cash or short-term bonds to avoid forced selling in a downturn.

Portfolio construction tips for recession risk

• Diversify across sectors and geographies to reduce single-source risk.
• Tilt toward quality: strong balance sheets, stable cash flow, and pricing power.
• Maintain a cash buffer to cover near-term spending needs and potential rebalancing opportunities.
• Rebalance periodically to buy low and sell high; rebalancing can improve risk-adjusted returns.

How to evaluate opportunities (value, dividends, defensive franchises)

Look for:

• Balance-sheet strength (low net debt, high liquidity).
• Consistent free cash flow and margin resilience.
• Pricing power and recurring revenue models (e.g., subscriptions).
• Valuation metrics that reflect reasonable downside assumptions (not just low price).

Dividend-paying companies with a long history of growing payouts can provide income stability, but dividends are not guaranteed and can be cut in severe downturns.

Case studies (detailed examples)

The Great Recession (2007–2009)

The 2007–2009 recession was driven by financial-sector stress and a housing-market collapse. The S&P 500 lost roughly 57% peak-to-trough. Banks, mortgage-related securities, and highly leveraged financial firms suffered the most. Recovery began in 2009 after coordinated fiscal and monetary action; however, the banking sector and some cyclicals took longer to regain pre-crisis highs.

COVID‑19 recession (2020)

The 2020 contraction was deep but unusually short in duration. Equity markets fell sharply in late February–March 2020 but rebounded quickly due to massive fiscal and monetary stimulus and the concentrated nature of the shock. Technology, digital services, and companies benefiting from remote work outperformed, while travel, leisure, and hospitality were hit hardest.

Examples of stocks that outperformed in recessions

Representative outperformers have included:

• Discount retailers and essential groceries (stable demand).
• Select healthcare firms and pharmaceuticals (steady demand, defensive revenues).
• Utilities and large-cap consumer staples (predictable earnings).
• During COVID‑19, certain large-cap technology and cloud software firms outpaced the market due to structural demand increases.

(These are illustrative examples of sectors and characteristics, not investment recommendations.)

Measuring and monitoring recession risk

Economic indicators and market signals

Common indicators include:

• Real GDP growth and revisions.
• Unemployment and initial jobless claims.
• Yield curve (inversion can signal stress but has false positives).
• Purchasing Managers’ Index (PMI) and industrial production.
• Corporate earnings trends and downgrade rates.

Monitoring these indicators helps investors form a view on recession odds, but signals should be treated in aggregate rather than singly.

Using market internals and valuations

Market breadth (percentage of stocks participating in rallies), valuation metrics (price-to-earnings, enterprise value/EBITDA), and credit spreads (corporate bond risk premia) provide useful market-state information. Widening credit spreads typically signal rising recession risk and higher expected equity downside.

Limitations and cautions

Uncertainty and uniqueness of each downturn

Every recession differs in trigger, depth, and duration. Historical patterns are informative but not prescriptive. Tail events and regime shifts can break past correlations.

Behavioral biases and emotional risk

Panic selling, herd behavior, and loss aversion can crystallize losses. Having a written plan that clarifies risk tolerance and rebalancing rules reduces emotionally driven mistakes.

Summary and takeaway

Stocks as a broad asset class have historically recovered from recessions and produced positive long-term returns. However, recessions bring heterogeneous outcomes across sectors and individual stocks: defensives and high-quality balance-sheet companies tend to fare better, while cyclical, highly leveraged firms suffer deeper drawdowns. Whether "do stocks do well in a recession" depends on horizon, sector exposure, valuation, and company quality. Investors should align portfolios to personal goals, maintain liquidity and emergency savings, apply diversification and rebalancing, and consider tactical tilts toward quality and defensive exposures when appropriate. For custody, trading, or wallet solutions tied to digital assets or tokenized exposure, consider Bitget services and Bitget Wallet for integrated access and security.

Further explore Bitget features and learn how to manage account settings, security options, and wallet custody to align trading behavior with your risk plan.

References and further reading

• Fidelity — "What happens in a recession? — 3 things you should know about recessions"
• The Motley Fool — "Is It Safe to Invest During a Recession?" and "Stock Performance in Every Recession Since 1980"
• Investopedia — "Industries That Can Thrive During Recessions"
• US News Money — "7 Stocks That Outperform in a Recession"
• GMO white paper — "Value Does Just Fine in Recessions"
• NerdWallet — "What to Invest in During a Recession"
• Morningstar, Wealth Enhancement, Fulton Bank research on recession-proofing portfolios

Sources for recent economic context:

• As of January 15, 2026, PA Wire reporting by Daniel Leal-Olivas noted a jump in credit-card defaults and weaker mortgage demand in the UK, signaling household stress that can matter for recession risk and consumer-facing stocks.

(Reporting dates and contents are included to ensure timely context.)

If you want, I can prepare a shorter checklist you can print for portfolio meetings, or produce a sector-by-sector table showing historical average returns during recent recessions. Explore Bitget to manage your account and Bitget Wallet for secure custody.