The COVID-19 pandemic rattled the equity markets this year. That volatility should not be surprising. Most of us have lived through recessions (such as the dot-com bust and global financial crisis), and we have all heard harrowing tales of past stock market crashes, such as the one in 1929.
But what makes a recession different from a depression?
There is not a standard answer. Broadly speaking, however, both recessions and depressions are widespread economic declines. Generally, a recession lasts for at least six months. A recession is sometimes defined as two consecutive quarters of declines in inflation-adjusted quarterly gross domestic product (GDP); other times, it is referenced by monthly business cycle peaks and troughs. A depression, meanwhile, is worse and lasts for several years.
Since earliest records in 1854, there has only been one depression. You know it as the Great Depression. It was actually a combination of two recessions: one that lasted from August 1929 to March 1933 and one that lasted from May 1937 to June 1938. Since earliest records in 1854, there have been 33 recessions (plus the one we are currently experiencing).
The question, though, is not whether we are in a recession but what you can do about it. When markets are volatile for any reason, it is a good idea to review your portfolio with a financial advisor. We can tell you if you are set up in a manner that meets your investing goals and risk tolerance over the long term.
Can I help you manage market volatility? Feel free to reach out.