Timing the Stock Market Around a Recession (It’s Harder Than You Think!)

Michael E. Schroer, CFA


The market consensus appears to indicate expectations of a recession to start later this year. What does this mean for stock market investors? Is it possible to time the market and preserve capital by predicting the onset of and recovery from a recession?

The table below shows the 12 recessions that occurred in the post-World War II era. The first column shows the price changes of the S&P 500® Index during the recession with, perhaps, a surprising conclusion. The stock market actually rose in 50% of the recessions, with an average loss over all periods of only 0.2% (the clear outlier was the Global Financial Crisis of 2008-2009, which we will discuss shortly). Even with perfect foresight of the start and end of a recession, selling stocks at the beginning of a recession and buying them back at the end resulted in the preservation of capital only 50% of the time.

S&P 500 Price Changes During Post-World War II Recessions

Data from 9/2/1945–4/30/2023
Source: FactSet

What if you perfectly anticipated the start of a recession three months before it began, and then bought stocks back when the recession ended? Column 2 in the table shows the S&P 500 price performance over those periods and, again, 50% of the time the market rose over the period. However, the average and median gains over the periods suggest that there would have been at least some potential benefit from having such foresight.

But what if you were late in identifying the end of a recession? Column 3 in the table shows the result of anticipating the start of a recession by three months but then identifying the end of a recession three months after it actually ended. Column 3 shows the market rising two-thirds of the time in these periods, with an average gain over all periods in the mid-single digits. Finally, what if you identify the start of a recession but are three months late in identifying its end? Column 4 shows the market rising 75% of the time in these periods, with an average gain over all periods, again, in the mid-single digits.

The object of this exercise is to demonstrate that it is extremely difficult to use predictions about recessions (even if they are accurate) in order to time the stock market. To be sure, if an investor had been able to predict the 2008–2009 recession with even partial accuracy, they would have reaped significant benefits. However, this is an exception rather than a rule. The 2008–2009 recession was global in its effects. It resulted in a significant breakdown of the financial system, and it was both the deepest (in terms of GDP decline) and longest of the recessions since World War II. Most recessions have been far less severe than the Global Financial Crisis of 2008–2009.

It will be undoubtedly stressful for stock market investors if a recession unfolds later this year or next, but history suggests that making market timing decisions based on recession predictions is not likely to add much value.

Past performance is not a guarantee of future results.


This Market Update reflects the thoughts of Renaissance as of April 30, 2023. This information has been provided by Renaissance Investment Management. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. This is not to be construed as an offer to buy or sell any financial instruments and should not be relied upon as the sole factor in an investment making decision, nor should it be considered a recommendation. The views and opinions expressed are those of the Chief Investment Officer at the time of publication and are subject to change. There is no guarantee that these views will come to pass. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing.


If Renaissance or benchmark performance is shown, it represents historically achieved results, and is no guarantee of future performance. Future investments may be made under materially different economic conditions, in different securities, and using different investment strategies and these differences may have a significant effect on the results portrayed. Each of these material market or economic conditions may or may not be repeated. Therefore, there may be sharp differences between the benchmark or Renaissance performance shown and the actual performance results achieved by any particular client. Benchmark results are shown for comparison purposes only. The benchmark presented represents unmanaged portfolios whose characteristics differ from the composite portfolios; however, they tend to represent the investment environment existing during the time periods shown. The benchmark cannot be invested in directly. The returns of the benchmark do not include any transaction costs, management fees, or other costs. The holdings of the client portfolios in our composites may differ significantly from the securities that comprise the benchmark shown. The benchmark has been selected to represent what Renaissance believes is an appropriate benchmark with which to compare the composite performance.


The value of an investment may fall as well as rise. Please note that different types of investments involve varying degrees of risk and there can be no assurance that any specific investment will either be suitable or profitable for a client or prospective client’s investment portfolio. Investor principal is not guaranteed and investors may not receive the full amount of their investment at the time of sale if asset values have fallen. No assurance can be given that an investor will not lose invested capital. Consultants supplied with these performance results are advised to use this data in accordance with SEC guidelines. The actual performance achieved by a client portfolio may be affected by a variety of factors, including the initial balance of the account, the timing and amount of any additions to or withdrawals from the portfolio, changes made to the account to reflect the specific investment needs or preferences of the client, durations and timing of participation as a RIM client, and a client portfolio’s risk tolerance, investment objectives, and investment time horizon. All investments carry a certain degree of risk, including the loss of principal, and are not guaranteed by the U.S. government.


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(Indices are unmanaged and are not available for direct investment.)
S&P 500 Index—The S&P 500 Stock Index is a market capitalization weighted index and consists of 500 stocks chosen for market size, liquidity and industry group representation.


S&P Dow Jones is the source and owner of the trademarks, service marks and copyrights related to the S&P Indexes. S&P® is a trademark of S&P Dow Jones. This presentation may contain proprietary S&P data and unauthorized use, disclosure, copying, dissemination or redistribution is strictly prohibited. This is a presentation of Renaissance Investment Management. S&P Dow Jones is not responsible for the formatting or configuration of this material or for any inaccuracy in Renaissance’s presentation thereof. This data is to be used for the recipient’s internal use only.


Michael E. Schroer, CFA


PUBLISHED: May 16th, 2023
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