How much does stock market go down in recession

Introduction

How much does stock market go down in recession is a common and practical question for investors, advisors and savers. This article provides a focused, data‑centric answer using the S&P 500 as the benchmark, NBER recession dates for U.S. cycles, and widely cited post‑war examples. As of 2026-01-15, according to reports from Kathmere Capital, Russell Investments and Schwab, historical peak‑to‑trough declines around U.S. recessions typically range from modest corrections to very large bear markets depending on the recession’s nature.

Readers will learn: typical magnitudes, timing relative to official recession dates, which sectors and asset classes tend to suffer most, the drivers of severe drawdowns, and practical investor implications including risk management options and measurement caveats.

Summary / Key takeaways

• Empirical reality: how much does stock market go down in recession varies widely but has averaged roughly 20–35% peak‑to‑trough in modern U.S. history, with some episodes far larger or smaller.
• Two recurring patterns: markets are forward‑looking (equity indexes commonly peak months before the technical start of a recession) and recoveries usually take longer than the initial decline.
• Not every recession produces a deep bear market; the presence of financial‑system stress (credit freezes, bank failures) is a key amplifier of large equity losses.

Definition and scope

• Recession: here we use the standard U.S. definition from the National Bureau of Economic Research (NBER) — a significant decline in economic activity spread across the economy, lasting more than a few months. NBER dates are the commonly used official reference for U.S. cycle timing.

• Market measures: this article typically measures peak‑to‑trough declines on the S&P 500 index (price series) to ensure comparability with many published studies. Where noted, total‑return series (including dividends) and other equity measures are discussed.

• Terminology:

  • Peak‑to‑trough decline: percentage fall from the market’s most recent high to its subsequent low.
  • Correction: an equity fall of 10% or more from a recent high.
  • Bear market: an equity fall of 20% or more from a recent high.

Historical patterns and statistics

Typical magnitude (averages and medians)

Historical studies that match S&P 500 peak‑to‑trough movements to NBER recession windows find a cluster of outcomes. On average, measured across modern post‑war recessions, mean peak‑to‑trough falls cluster roughly in the 25–31% range, with medians often near 25–28%.

These averages summarize a wide distribution: many recessions see a market decline a little over 20%; some are shallow; a few are very deep. This is the clearest answer to the question how much does stock market go down in recession: the typical central‑tendency is roughly a mid‑20s percentage decline, but variability is high.

Range and notable extremes

• Great Financial Crisis (2007–2009): S&P 500 peak‑to‑trough drop roughly ~55–57% (depending on exact peak/trough dates used). This is among the largest post‑war recessions for equity losses.
• COVID‑19 recession (Feb–Apr 2020): rapid peak‑to‑trough decline of about ~33–34% from February to March 2020, followed by a fast rebound.
• 1973–1974 recession: a deep decline near ~48% in the S&P 500.
• Mild recessions: several post‑war recessions produced modest equity moves or flat returns when measured across the recession window.

These examples underline that asking simply how much does stock market go down in recession requires contextualizing the underlying cause and market conditions.

How often recessions produce big drawdowns

Not every recession equals a severe bear market. Historical frequency shows many recessions coincide with bear markets, but a nontrivial share are associated with smaller corrections or little negative return. Studies that exclude extreme outliers (e.g., the Great Depression) find that meaningful bear markets (≥20%) are common but not universal during recessions.

Timing: when markets fall relative to recession dates

A consistent empirical finding is that equity markets are forward‑looking.

• Markets often peak before the technical start of a recession. On average, peaks occur roughly 5–8 months before NBER‑dated recession starts in many studies.
• Market bottoms can occur near the official recession trough or after it; there is no single rule. In some episodes markets bottom before the economy stops contracting, while in others the market bottoms after the recession trough.

Why? Prices reflect expected future corporate earnings and discount rates. Economic data are reported with delay and revisions, while equity investors price expectations today. Therefore, the timing of market highs and lows relative to NBER dates explains part of why answers to how much does stock market go down in recession will vary depending on the measurement convention used (peak‑to‑trough vs. recession‑start to recession‑end).

Duration of declines and recovery

• Typical duration of peak‑to‑trough declines: months to a few years. Shallow corrections can unfold in a few months; deep bear markets linked to financial crises may take multiple years to reach a trough.
• Recovery to prior peaks: historical median recovery time often ranges from roughly 2 to 4 years, with significant variation. The 2007–2009 drawdown took several years to recover fully; by contrast, the 2020 COVID‑driven decline recovered to previous peaks within months because of unprecedented policy responses and the unique nature of the shock.

This pattern contributes to the practical answer of how much does stock market go down in recession: even when declines are large, patient long‑term investors historically have seen recoveries, though the time required can be material for near‑term savers.

Cross‑sectional differences: sectors and styles

• Cyclical sectors (financials, industrials, energy, consumer discretionary) historically fall more during recessions because their earnings are closely tied to economic activity.
• Defensive sectors (utilities, consumer staples, health care) typically hold up relatively better.
• Style and size effects vary by recession cause: small caps often underperform in deep credit or liquidity crises; growth vs. value performance depends on interest‑rate moves and whether the shock disproportionately affects earnings assumptions for high‑growth firms.

Understanding these differences helps explain why portfolio composition influences how much a specific investor's holdings decline during recessions.

Other asset classes and correlations

• High‑quality government bonds: in severe equity downturns, U.S. Treasuries often outperform equities and can serve as a stabilizer in multi‑asset portfolios.
• Cash: preserves principal but loses purchasing power over time; useful for liquidity and rebalancing opportunities.
• Gold and commodities: behavior depends on the type of recession. Demand‑driven recessions can weigh on commodities; stagflationary episodes can see commodity and gold strength.

Correlation between GDP declines and equity returns is not stable. Excluding extreme outliers such as the 2020 pandemic shock, the statistical relationship between recession depth and stock returns can be weak — market moves depend heavily on financial‑system stress, policy response, and forward expectations rather than contemporaneous GDP alone.

Causes of deeper vs. milder equity declines

Key drivers that amplify equity losses during recessions:

• Systemic financial stress: bank failures, severe credit tightening and contagion cause outsized equity losses.
• Earnings shocks: large downward revisions to expected corporate profits lead to persistent price declines.
• Liquidity crises: when selling overwhelms buyers, prices fall sharply even for fundamentally sound firms.
• Policy failures or delay: slower fiscal or monetary responses can worsen market declines.

Conversely, contained recessions driven by temporary demand shocks with intact financial systems tend to produce milder equity drawdowns.

Data, methodology and caveats

Measurement choices materially affect answers to how much does stock market go down in recession:

• Index choice: S&P 500 price vs total‑return series (including dividends) gives different numerical declines; total return cushions the decline somewhat over long horizons.
• Anchor dates: measuring from market peak to market trough is different from measuring from recession start to recession end; the former often shows larger declines because markets frequently peak prior to the recession start.
• NBER dating: official recession dates are often published months after the cycle and are subject to revisions.
• Outlier events: including pandemic or Depression‑era episodes dramatically changes averages. Researchers often present medians as a more robust central tendency.
• Market structure and policy regime changes: monetary policy frameworks, market liquidity, and the rise of passive investing alter how modern markets behave versus earlier decades.

All these caveats mean historical averages should be used as contextual guidance rather than precise forecasts.

Investor implications and common strategies

Long‑term perspective and diversification

• Maintain a diversified portfolio across asset classes, sectors and geographies. Diversification reduces idiosyncratic risk and can materially change how much any investor’s portfolio falls during recessions.
• Rebalancing in volatile markets can lock in buying opportunities and improve long‑term returns versus panic selling.

Tactical considerations

• Dollar‑cost averaging eases the timing risk of large lump‑sum investments during volatile periods.
• Holding a prudent emergency cash reserve reduces the need to sell into a market trough.
• Defensive tilts (higher allocation to high‑quality bonds or defensive sectors) can reduce near‑term volatility but may have long‑term opportunity costs. Timing such tilts consistently is difficult.

Behavioral cautions

• Avoid panic selling: selling after large declines often locks in losses and misses recoveries; many market bottoms occur before the public recognizes improvement.
• Have a documented plan: allocation targets, rebalancing rules and stop‑loss policies help reduce emotionally driven decisions.

Note: this section presents general guidance and does not constitute personalized investment advice.

Case studies (concise)

Great Financial Crisis (2007–2009)

• S&P 500 peak‑to‑trough: roughly ~55–57% depending on exact dates.
• Drivers: housing bust, broad financial‑system stress, credit contraction.
• Recovery: multi‑year recovery to regain prior highs; substantial policy intervention eventually restored market functioning.

COVID‑19 recession (Feb–Apr 2020)

• S&P 500 peak‑to‑trough: roughly ~33–34% between February and March 2020.
• Drivers: sudden stop in economic activity due to pandemic restrictions; massive, rapid monetary and fiscal responses.
• Recovery: unusually fast rebound — markets recovered previous peaks within months, highlighting the role of policy and the idiosyncratic nature of the shock.

1973–1974 and early 2000s

• 1973–1974: S&P 500 decline near ~48%; stagflation, oil shocks and policy environment drove weakness.
• Early 2000s (dot‑com bust): large drawdowns focused on technology and growth stocks, with a slower multi‑year recovery for affected sectors.

Frequently asked quantitative questions

Q: What is a typical bear market in a recession? A: Historically, many recessions coincide with a bear market (≥20% decline). Typical peak‑to‑trough median falls across post‑war recessions fall in the mid‑20s percent range.

Q: How long until recovery after a recession‑related market drop? A: Recovery times vary. Median recovery to the prior peak commonly takes multiple years (often 2–4 years), though rapid recoveries have occurred (e.g., 2020).

Q: Do stocks always fall in a recession? A: No. Stocks often fall, but not invariably. Some recessions have produced modest declines or flat/positive equity returns depending on expectations and policy responses.

Q: How much does stock market go down in recession for small caps or cyclical sectors? A: Small caps and cyclical sectors usually fall more than the broad market during recessions, sometimes substantially more in severe cycles tied to credit stress.

Sources and further reading

As of 2026-01-15, the following sources and practitioner summaries inform the figures and patterns summarized above: Kathmere Capital (historical peak‑to‑trough exhibits), Russell Investments (recessions and stock market behavior), Schwab research on bear markets and recovery timing, Fidelity and Hartford Funds investor guidance, and public datasets including the S&P 500 series and NBER recession dates. These provide the empirical basis for the central ranges and case studies discussed.

Appendix: Suggested datasets and measurement notes

• Index series: use the S&P 500 price index for peak‑to‑trough percent changes; use the S&P 500 total‑return series when including dividends for longer‑horizon outcomes.
• Recession dates: obtain NBER U.S. recession start and end dates.
• Measuring peak‑to‑trough: identify the highest index value prior to the next sustained decline and the subsequent low before a sustained recovery; calculate (peak - trough) / peak * 100 to get percent decline.
• Recovery to peak: identify the date when the index again exceeds the prior peak and compute the number of calendar months/years from the trough.

Practical next steps and Bitget note

If you are researching historical market behavior, start with the S&P 500 price and total‑return series and NBER recession dates to replicate the basic statistics above. For those using trading or custody platforms, consider secure providers; for Web3 wallet options, Bitget Wallet is a supported recommendation for custody and interaction with digital assets within the Bitget ecosystem.

Explore Bitget features and educational resources if you wish to learn about market tools, custody options and risk‑management primitives that can support multi‑asset portfolios during volatile cycles.

Final thoughts and reader guidance

The short answer to how much does stock market go down in recession is: it depends — but history shows typical peak‑to‑trough declines near the mid‑20s percent, with a wide range from shallow corrections to very deep bear markets when financial stress is involved. Timing and recovery vary materially by episode. Use diversified portfolios, reasonable cash buffers and a documented plan to manage the uncertainty that recessions impose on markets.

If you would like, I can expand any section into a per‑recession table with exact dates and percent declines (S&P 500 price and total return) or provide a short bibliography with direct source citations and dataset instructions.