How do different asset classes perform coming out of recessions? Is there a drop off in performance in the second year of a recovery relative to the first year? In this analysis we look at asset class performance in the two calendar years after a recession ends.
We utilized the National Bureau of Economic Research’s (NBER) business cycle dating to determine the end date of recessions going back to 1950. The analysis below looks at various asset classes’ performance in the first and second years after the NBER recession end dates.
There have been 10 recessions since 1950, excluding 2020. For the recessions that ended in 1954, 1958, 1961, and 1970, we only have data on the S&P 500. The Bloomberg US Corporate Bond Index was launched in 1973 and is available for the recessions dated after 1975. The Russell indices have data applicable for the recessions dated after 1980 and the Bloomberg US Corporate High Yield Index is available for recessions dated after 1990.
The exhibit below compares each index’s average return in the first year after a recession with its average return in the second year.
Apart from the S&P 500, all asset classes have higher average returns in the second year after a recession relative to the first. High yield bonds have the highest average returns in both years relative to the other classes. Focusing on the equity space, small -cap stocks have the highest average returns in both the first and second years relative to the other indices. Looking at value versus growth, we find that value on average outperformed growth in both the first and second year of a recovery.
Based on our prior research, we know that there have been 16 expansionary periods in the economy since 1926 and that the average economic expansion has lasted for 4.85 years. The analysis presented in this piece shows that over the last 10 expansionary periods, asset classes on average have strong returns in both the first and second years following a recession. Further, nearly all asset classes have had higher average returns in the second year of an expansion relative to the first year, with the only exception being the S&P 500.
The S&P 500 Index is an unmanaged index of common stock performance.
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