Looking back at 5 recessionary periods in history: How might this time be different?

The U.S. is now officially in a technical recession, following negative second-quarter GDP growth: -0.9%. Let’s take a look at the last 5 recessions and how this one might be different.

A recession is defined as “a temporary period of economic downturn during which trade and industrial activity decreases, often manifested by two consecutive quarters of declining GDP”.

There are two types of recessions:

  • Recession: An economic downturn that lasts for a considerable period of time.
  • Technical Recession: Two consecutive quarters of back-to-back declines in GDP (two consecutive quarters).

According to today’s GDP figures, the US is now in a “technical recession”.

1. 1980 – 1982

During this period, there were two recessions, the worst of which occurred in 1982.

• Duration: 22 months total

• S&P 500 performance: -25%

• Recovery: 15 months

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This recession was caused by the Federal Reserve raising interest rates to curb inflation. High interest rates put pressure on sectors of the economy that depend on borrowing, such as manufacturing and construction, which contributed to the recession. Sounds very similar to the current situation.

2.1990 – 1991

This is considered a “lightning recession” with a rapid V-shaped recovery (similar to the 2020 COVID crash):

• Duration: 9 months

• S&P 500 performance: -25%

• Recovery: 9 months

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3. 2001 (Internet Bubble)

The boom in U.S. tech stocks in the 1990s led to massive overvaluation, creating a bubble that eventually burst in 2001.

• Duration: 8 months

• Nasdaq performance: -71%

• Recovery: 14 years (S&P 500: 7 years)

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The 2001 crash was so severe that it took the S&P 500 and Nasdaq 7 and 14 years, respectively, to recover. Some commentators liken the high valuations of cryptocurrencies to tech stocks in the late 1990s.

4. 2008 (Great Depression)

It was one of the worst financial meltdowns in history, triggered by the 2006 subprime mortgage crisis.

• Duration: 18 months

• S&P 500 performance: -55%

• Recovery: 4 years

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This has led to severe liquidity problems for banks, hedge funds and insurance companies. In October 2008, the US Congress approved a $70 billion bank rescue package, followed by a $78.7 billion economic stimulus package to avoid a global recession.

5. 2020 (Corona crisis)

The global pandemic virus triggered a brief crash, but unprecedented monetary policy led to a V-shaped recovery.

• Duration: 4 months

• S&P 500 performance: -35%

• Recovery: 6 months

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The current situation is very unique given the aggressive monetary policy post-pandemic. Historically, in past recessions, if you invested in negative GDP quarters and took profits when GDP started to recover, your average return was 31%.

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So far, the combination of monetary policy and recession duration/severity looks most similar to the 1982 recession, which took 15 months to recover.

FYI: So far, it’s been 6.8 months since the last peak in January 2022.

Gareth Soloway believes that the confirmation of a recession is bullish for stocks and Bitcoin in the short term, as the Federal Reserve is now unable to raise interest rates significantly. However, we should not gloss over the fundamental macroeconomic harm of recessions, especially when considering the long-term effects.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/looking-back-at-5-recessionary-periods-in-history-how-might-this-time-be-different/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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