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Yahoo
7 days ago
- Business
- Yahoo
You won't know when a recession starts: 5 key facts about downturns
The looming threat of recession has hung over American consumers for what seems like forever, an ongoing economic drama that stretches back to the early pandemic years. The chances of a recession in 2025 currently stand at about 40%, according to a May 27 report from J.P. Morgan. A month ago, many forecasters put the odds higher than 50%. If a recession comes, how will we know? When will it end? What will be the fallout on Wall Street? Here are some answers, drawn from experts at Investopedia, Motley Fool, Fidelity, NerdWallet and other sources. Economic downturns might seem to last forever: Endless months of corporate layoffs, shaky stock prices and general financial malaise. Yet, going back to the Civil War era, the average recession has lasted only about 17 months. Since World War II, the typical recession has lasted about 10 months. 'The reason they've been getting shorter is that policymakers and the Federal Reserve and the Treasury have been getting more creative about how to deal with them,' said Caleb Silver, editor in chief of Investopedia. 'That could mean flooring interest rates. That could mean stimulating the economy by giving stimulus payments to households.' Recessions feel interminable because of their impact on the job market, stock market and household budgets. The actual downturn might end in 10 months, but it 'may take us longer to bounce back,' said Niv Persaud, a certified financial planner in Atlanta. Recessions are part of America's boom and bust cycle. And here's the good news: Boom times tend to be longer. In the post-WWII era, the average economic expansion has lasted for nearly five years. The National Bureau of Economic Research defines a recession as 'a significant decline in economic activity spread across the economy, lasting more than a few months.' By that definition, a recession isn't a recession until the downturn has persisted for at least a few months. Theoretically, we could be in a recession right now. 'You don't usually find out that you're in a recession until six months after you've been in one,' said Denise Chisholm, director of quantitative market strategy at Fidelity. The economic bureau decides when a recession has started, Fidelity reports, measuring signs of sustained decline in purchasing power, employment data, industrial production, retail sales and gross domestic product, among other factors. Typically, those metrics must fall for several months before the economic bureau invokes the "R" word. But not always: The COVID-19 recession of 2020 lasted only two months. How convenient it would be for wary investors, searching for clues to the market's direction, if stock prices began marching steadily down on the day the economists announced a recession. But the market doesn't work that way. 'The stock market is a leading indicator,' said Robert Brokamp, a senior adviser at The Motley Fool. The market anticipates economic trends, including recessions, months before they arrive. 'It starts to go down, generally speaking, six months before a recession,' Brokamp said. 'And it starts to recover six months before the recession is over, very broadly speaking.' When you consider that we don't know a recession is happening until months after it starts, you begin to understand how hard it can be to make investment decisions in a recession. 'Stocks usually bottom out about halfway through,' said Chisholm of Fidelity. 'So, by the time you have learned you are in a recession, stocks, more often than not, have bottomed.' The stock market and economy don't move in lockstep. Sometimes they seem to move in opposite directions. 'If we go into a recession,' said Silver of Investopedia, 'you might notice that the stock market didn't dip that much at all.' However much investors might fret about the stock market in a downturn, history suggests the market will eventually recover. The S&P 500 took back all of its losses in the Great Recession of 2008, although not until 2013. If you're retired and spending down your savings, then a recession can bring fiscal disaster. For just about anyone else, there's time to rebound. The bigger danger, said Brokamp of Motley Fool, is losing your job. Unemployment hit 10% in the Great Recession, the jobless rate peaking after the actual recession was over. Unemployment reached 14.7% in the brief COVID-19 downturn. People lose jobs in recessions because companies are making fewer goods and selling fewer services, and thus, they need fewer employees. 'If you're still working, and you're not close to retirement, the big issue is job security,' Brokamp said. To buy low and sell high is a mantra of investing. But timing those transactions can be tricky. When to sell stocks is a particularly tough call, for the simple reason that stock prices tend to rise. You could sell your stocks on a day when the S&P 500 hits a record high, only to wake up the next day and watch the market climb higher. Cashing out of the stock market in a recession is generally a mistake, experts say, because of the market's notorious volatility. It's hard to predict when stock prices will slide, how low they will go, or when they will recover. 'Selling stocks to try to protect your portfolio from a recession is going to be an almost impossible enterprise,' said Sam Taube, a lead investing writer at NerdWallet. But buying stocks in a recession, experts say, can be a comparatively safe move. The 'buy low' directive instructs that investors should purchase stocks when the market is down. In a downturn, stock indexes can fall 10% or 20% (or more) below their historic highs. Buying stocks at those times is a relatively easy call. 'History has shown us that the stock market recovers,' said Brokamp of Motley Fool. 'So, if you have the opportunity to buy stocks at a discount, you'll always be happy you did it.' Remember, though, that months or years might pass before the stock market recovers completely from a recessionary swoon. Buying stocks in a downturn makes the most sense for investors who won't need the money for the holidays. This article originally appeared on USA TODAY: 5 facts about economic recessions: You won't know when one's coming
USA Today
29-05-2025
- Business
- USA Today
You won't know when a recession starts: 5 key facts about downturns
You won't know when a recession starts: 5 key facts about downturns Show Caption Hide Caption What we know: How savings could protect your family in a recession This is the strategy and amount of savings that protect your family in a recession. Here's what we know now. The looming threat of recession has hung over American consumers for what seems like forever, an ongoing economic drama that stretches back to the early pandemic years. The chances of a recession in 2025 currently stand at about 40%, according to a May 27 report from J.P. Morgan. A month ago, many forecasters put the odds higher than 50%. If a recession comes, how will we know? When will it end? What will be the fallout on Wall Street? Here are some answers, drawn from experts at Investopedia, Motley Fool, Fidelity, NerdWallet and other sources. Recessions are shorter than they seem Economic downturns might seem to last forever: Endless months of corporate layoffs, shaky stock prices and general financial malaise. Yet, going back to the Civil War era, the average recession has lasted only about 17 months. Since World War II, the typical recession has lasted about 10 months. 'The reason they've been getting shorter is that policymakers and the Federal Reserve and the Treasury have been getting more creative about how to deal with them,' said Caleb Silver, editor in chief of Investopedia. 'That could mean flooring interest rates. That could mean stimulating the economy by giving stimulus payments to households.' Recessions feel interminable because of their impact on the job market, stock market and household budgets. The actual downturn might end in 10 months, but it 'may take us longer to bounce back,' said Niv Persaud, a certified financial planner in Atlanta. Recessions are part of America's boom and bust cycle. And here's the good news: Boom times tend to be longer. In the post-WWII era, the average economic expansion has lasted for nearly five years. You won't know when a recession starts The National Bureau of Economic Research defines a recession as 'a significant decline in economic activity spread across the economy, lasting more than a few months.' By that definition, a recession isn't a recession until the downturn has persisted for at least a few months. Theoretically, we could be in a recession right now. 'You don't usually find out that you're in a recession until six months after you've been in one,' said Denise Chisholm, director of quantitative market strategy at Fidelity. The economic bureau decides when a recession has started, Fidelity reports, measuring signs of sustained decline in purchasing power, employment data, industrial production, retail sales and gross domestic product, among other factors. Typically, those metrics must fall for several months before the economic bureau invokes the "R" word. But not always: The COVID-19 recession of 2020 lasted only two months. In a recession, stocks don't always go down How convenient it would be for wary investors, searching for clues to the market's direction, if stock prices began marching steadily down on the day the economists announced a recession. But the market doesn't work that way. 'The stock market is a leading indicator,' said Robert Brokamp, a senior adviser at The Motley Fool. The market anticipates economic trends, including recessions, months before they arrive. 'It starts to go down, generally speaking, six months before a recession,' Brokamp said. 'And it starts to recover six months before the recession is over, very broadly speaking.' When you consider that we don't know a recession is happening until months after it starts, you begin to understand how hard it can be to make investment decisions in a recession. 'Stocks usually bottom out about halfway through,' said Chisholm of Fidelity. 'So, by the time you have learned you are in a recession, stocks, more often than not, have bottomed.' The stock market and economy don't move in lockstep. Sometimes they seem to move in opposite directions. 'If we go into a recession,' said Silver of Investopedia, 'you might notice that the stock market didn't dip that much at all.' The big danger in a recession is losing your job However much investors might fret about the stock market in a downturn, history suggests the market will eventually recover. The S&P 500 took back all of its losses in the Great Recession of 2008, although not until 2013. If you're retired and spending down your savings, then a recession can bring fiscal disaster. For just about anyone else, there's time to rebound. The bigger danger, said Brokamp of Motley Fool, is losing your job. Unemployment hit 10% in the Great Recession, the jobless rate peaking after the actual recession was over. Unemployment reached 14.7% in the brief COVID-19 downturn. People lose jobs in recessions because companies are making fewer goods and selling fewer services, and thus, they need fewer employees. 'If you're still working, and you're not close to retirement, the big issue is job security,' Brokamp said. A recession is a great time to buy stocks To buy low and sell high is a mantra of investing. But timing those transactions can be tricky. When to sell stocks is a particularly tough call, for the simple reason that stock prices tend to rise. You could sell your stocks on a day when the S&P 500 hits a record high, only to wake up the next day and watch the market climb higher. Cashing out of the stock market in a recession is generally a mistake, experts say, because of the market's notorious volatility. It's hard to predict when stock prices will slide, how low they will go, or when they will recover. 'Selling stocks to try to protect your portfolio from a recession is going to be an almost impossible enterprise,' said Sam Taube, a lead investing writer at NerdWallet. But buying stocks in a recession, experts say, can be a comparatively safe move. The 'buy low' directive instructs that investors should purchase stocks when the market is down. In a downturn, stock indexes can fall 10% or 20% (or more) below their historic highs. Buying stocks at those times is a relatively easy call. 'History has shown us that the stock market recovers,' said Brokamp of Motley Fool. 'So, if you have the opportunity to buy stocks at a discount, you'll always be happy you did it.' Remember, though, that months or years might pass before the stock market recovers completely from a recessionary swoon. Buying stocks in a downturn makes the most sense for investors who won't need the money for the holidays.
Yahoo
29-05-2025
- Business
- Yahoo
You won't know when a recession starts: 5 key facts about downturns
The looming threat of recession has hung over American consumers for what seems like forever, an ongoing economic drama that stretches back to the early pandemic years. The chances of a recession in 2025 currently stand at about 40%, according to a May 27 report from J.P. Morgan. A month ago, many forecasters put the odds higher than 50%. If a recession comes, how will we know? When will it end? What will be the fallout on Wall Street? Here are some answers, drawn from experts at Investopedia, Motley Fool, Fidelity, NerdWallet and other sources. Economic downturns might seem to last forever: Endless months of corporate layoffs, shaky stock prices and general financial malaise. Yet, going back to the Civil War era, the average recession has lasted only about 17 months. Since World War II, the typical recession has lasted about 10 months. 'The reason they've been getting shorter is that policymakers and the Federal Reserve and the Treasury have been getting more creative about how to deal with them,' said Caleb Silver, editor in chief of Investopedia. 'That could mean flooring interest rates. That could mean stimulating the economy by giving stimulus payments to households.' Recessions feel interminable because of their impact on the job market, stock market and household budgets. The actual downturn might end in 10 months, but it 'may take us longer to bounce back,' said Niv Persaud, a certified financial planner in Atlanta. Recessions are part of America's boom and bust cycle. And here's the good news: Boom times tend to be longer. In the post-WWII era, the average economic expansion has lasted for nearly five years. The National Bureau of Economic Research defines a recession as 'a significant decline in economic activity spread across the economy, lasting more than a few months.' By that definition, a recession isn't a recession until the downturn has persisted for at least a few months. Theoretically, we could be in a recession right now. 'You don't usually find out that you're in a recession until six months after you've been in one,' said Denise Chisholm, director of quantitative market strategy at Fidelity. The economic bureau decides when a recession has started, Fidelity reports, measuring signs of sustained decline in purchasing power, employment data, industrial production, retail sales and gross domestic product, among other factors. Typically, those metrics must fall for several months before the economic bureau invokes the "R" word. But not always: The COVID-19 recession of 2020 lasted only two months. How convenient it would be for wary investors, searching for clues to the market's direction, if stock prices began marching steadily down on the day the economists announced a recession. But the market doesn't work that way. 'The stock market is a leading indicator,' said Robert Brokamp, a senior adviser at The Motley Fool. The market anticipates economic trends, including recessions, months before they arrive. 'It starts to go down, generally speaking, six months before a recession,' Brokamp said. 'And it starts to recover six months before the recession is over, very broadly speaking.' When you consider that we don't know a recession is happening until months after it starts, you begin to understand how hard it can be to make investment decisions in a recession. 'Stocks usually bottom out about halfway through,' said Chisholm of Fidelity. 'So, by the time you have learned you are in a recession, stocks, more often than not, have bottomed.' The stock market and economy don't move in lockstep. Sometimes they seem to move in opposite directions. 'If we go into a recession,' said Silver of Investopedia, 'you might notice that the stock market didn't dip that much at all.' However much investors might fret about the stock market in a downturn, history suggests the market will eventually recover. The S&P 500 took back all of its losses in the Great Recession of 2008, although not until 2013. If you're retired and spending down your savings, then a recession can bring fiscal disaster. For just about anyone else, there's time to rebound. The bigger danger, said Brokamp of Motley Fool, is losing your job. Unemployment hit 10% in the Great Recession, the jobless rate peaking after the actual recession was over. Unemployment reached 14.7% in the brief COVID-19 downturn. People lose jobs in recessions because companies are making fewer goods and selling fewer services, and thus, they need fewer employees. 'If you're still working, and you're not close to retirement, the big issue is job security,' Brokamp said. To buy low and sell high is a mantra of investing. But timing those transactions can be tricky. When to sell stocks is a particularly tough call, for the simple reason that stock prices tend to rise. You could sell your stocks on a day when the S&P 500 hits a record high, only to wake up the next day and watch the market climb higher. Cashing out of the stock market in a recession is generally a mistake, experts say, because of the market's notorious volatility. It's hard to predict when stock prices will slide, how low they will go, or when they will recover. 'Selling stocks to try to protect your portfolio from a recession is going to be an almost impossible enterprise,' said Sam Taube, a lead investing writer at NerdWallet. But buying stocks in a recession, experts say, can be a comparatively safe move. The 'buy low' directive instructs that investors should purchase stocks when the market is down. In a downturn, stock indexes can fall 10% or 20% (or more) below their historic highs. Buying stocks at those times is a relatively easy call. 'History has shown us that the stock market recovers,' said Brokamp of Motley Fool. 'So, if you have the opportunity to buy stocks at a discount, you'll always be happy you did it.' Remember, though, that months or years might pass before the stock market recovers completely from a recessionary swoon. Buying stocks in a downturn makes the most sense for investors who won't need the money for the holidays. This article originally appeared on USA TODAY: 5 facts about economic recessions: You won't know when one's coming Error while retrieving data Sign in to access your portfolio Error while retrieving data Error while retrieving data Error while retrieving data Error while retrieving data
Yahoo
19-05-2025
- Business
- Yahoo
Emergency savings are crucial in a recession. Here's the dollar figure to aim for.
The average American family in 2025 should have at least $35,000 in emergency savings, according to a new report from Investopedia. And the figure keeps rising. That tab represents six months of emergency expenses for the typical American household, and it totals about two-fifths of that household's annual income. Many financial experts recommend that families should amass enough emergency savings to sustain them for three to six months, if not longer. The emergency fund is meant to protect you against a job loss, health crisis, car breakdown or major household repair. Emergency savings become especially important during a recession, a scenario Americans could be facing in the months to come. Last year, Investopedia set out to put a price on six months of emergency expenses, including housing, medical care, travel and food. In 2024, the total came to just over $33,000. In a 2025 update, published in May, Investopedia ran the numbers again. This time, they added up to $35,218. 'It's about a 5% jump,' said Caleb Silver, editor in chief of Investopedia. 'The biggest factor is medical care. Those costs have gone up more than inflation.'The analysis considered the costs of six months of housing, utilities, food, medical care and car payments for a household of at least two people. Here's the breakdown: ◾$11,635 for medical care: The average cost of single-coverage COBRA premiums for six months, multiplied by average household size. ◾$10,621 for cars: The average cost to own two vehicles for six months, and to operate one. ◾$9,785 for housing and utilities: Average costs for six months of housing and utilities for renters and homeowners. ◾$3,176 for food: Average costs for six months of groceries. Most American households don't have that kind of cash lying around. The $35,000 figure is four times the median balance in the combined checking and savings accounts of American households, which is $8,742, according to the Federal Reserve. At least 1 in 5 Americans have no emergency savings account, according to a March survey by WalletHub, the personal finance site. WalletHub CEO Odysseas Papadimitriou finds that statistic alarming. 'Emergency savings should be the top priority of every household, above everything else,' he said. Without it, 'you are completely exposed to financial disaster.' Silver, of Investopedia, agrees. 'If you don't have an emergency savings account, and you come up against an emergency, and you have to go into debt to pay those bills, you start a cycle of debt that is very hard to get out of,' he said. Investopedia tabulated six months of household expenses as an exercise, essentially, to illustrate that it is a very large sum. 'We're doing it to make sure people have a realistic idea of how much your actual needs would cost if you were to lose your income and your healthcare to support your household,' Silver said. And yet, as we have said, most American families do not have emergency savings to cover six months of expenses. Here's the good news: Even a small emergency savings account is better than nothing. Emergency savings put consumers at ease. Research published in April by Vanguard found that having at least $2,000 in emergency savings yields a 21% boost in financial well-being, compared with having no emergency fund. People who lack emergency savings are more likely to report financial stress. A $500 emergency fund might cover a small car repair or modest medical bill. A $2,000 fund can see you through a larger car repair or appliance replacement. With $10,000, you could cover a wider range of household emergencies. 'Three to six months of expenses may be a goal that feels a little unattainable for some,' said Sam Taube, a lead investing writer at NerdWallet. As a more modest goal, Taube said, 'there can be merit in just taking a round number, and aiming for that.' NerdWallet offers an emergency fund calculator, which can get you started on saving. Here are some tips on emergency savings, from NerdWallet, Investopedia and other sources: In the current interest rate climate, it isn't hard to find annual returns of 4% or better on your emergency savings account, if you know where to look. One option is high-yield savings accounts. The best rates tend to come from online banks, which have relatively low overhead and are competing for your business. Another choice: money market accounts. They combine features of checking and savings accounts. They can have high balance requirements, but competitive rates often top 4%. It's tempting to open an emergency savings account at your everyday bank. But that convenience 'can be a double-edged sword,' Taube said, because the money is there for the taking. A better idea, he said, is to 'go through the steps of opening a separate account with a separate financial institution somewhere,' as a way to put your emergency savings out of sight, if not out of mind. That way, you're less likely to raid the account. If you open an emergency fund and make contributions more or less at random, you may struggle to build savings. Automatic contributions can help you amass savings methodically. An employer may allow you to direct-deposit part of your paycheck into an emergency savings account, or you can set up automated transfers yourself. As Taube notes, a mere $10 a week adds up to more than $500 after a year. This article originally appeared on USA TODAY: Emergency savings matter in a recession. Here's a number to aim for.
Yahoo
19-05-2025
- Business
- Yahoo
Emergency savings are crucial in a recession. Here's the dollar figure to aim for.
The average American family in 2025 should have at least $35,000 in emergency savings, according to a new report from Investopedia. And the figure keeps rising. That tab represents six months of emergency expenses for the typical American household, and it totals about two-fifths of that household's annual income. Many financial experts recommend that families should amass enough emergency savings to sustain them for three to six months, if not longer. The emergency fund is meant to protect you against a job loss, health crisis, car breakdown or major household repair. Emergency savings become especially important during a recession, a scenario Americans could be facing in the months to come. Last year, Investopedia set out to put a price on six months of emergency expenses, including housing, medical care, travel and food. In 2024, the total came to just over $33,000. In a 2025 update, published in May, Investopedia ran the numbers again. This time, they added up to $35,218. 'It's about a 5% jump,' said Caleb Silver, editor in chief of Investopedia. 'The biggest factor is medical care. Those costs have gone up more than inflation.' The analysis considered the costs of six months of housing, utilities, food, medical care and car payments for a household of at least two people. Here's the breakdown: ◾$11,635 for medical care: The average cost of single-coverage COBRA premiums for six months, multiplied by average household size. ◾$10,621 for cars: The average cost to own two vehicles for six months, and to operate one. ◾$9,785 for housing and utilities: Average costs for six months of housing and utilities for renters and homeowners. ◾$3,176 for food: Average costs for six months of groceries. Most American households don't have that kind of cash lying around. The $35,000 figure is four times the median balance in the combined checking and savings accounts of American households, which is $8,742, according to the Federal Reserve. At least 1 in 5 Americans have no emergency savings account, according to a March survey by WalletHub, the personal finance site. WalletHub CEO Odysseas Papadimitriou finds that statistic alarming. 'Emergency savings should be the top priority of every household, above everything else,' he said. Without it, 'you are completely exposed to financial disaster.' Silver, of Investopedia, agrees. 'If you don't have an emergency savings account, and you come up against an emergency, and you have to go into debt to pay those bills, you start a cycle of debt that is very hard to get out of,' he said. Investopedia tabulated six months of household expenses as an exercise, essentially, to illustrate that it is a very large sum. 'We're doing it to make sure people have a realistic idea of how much your actual needs would cost if you were to lose your income and your healthcare to support your household,' Silver said. And yet, as we have said, most American families do not have emergency savings to cover six months of expenses. Here's the good news: Even a small emergency savings account is better than nothing. Emergency savings put consumers at ease. Research published in April by Vanguard found that having at least $2,000 in emergency savings yields a 21% boost in financial well-being, compared with having no emergency fund. People who lack emergency savings are more likely to report financial stress. A $500 emergency fund might cover a small car repair or modest medical bill. A $2,000 fund can see you through a larger car repair or appliance replacement. With $10,000, you could cover a wider range of household emergencies. 'Three to six months of expenses may be a goal that feels a little unattainable for some,' said Sam Taube, a lead investing writer at NerdWallet. As a more modest goal, Taube said, 'there can be merit in just taking a round number, and aiming for that.' NerdWallet offers an emergency fund calculator, which can get you started on saving. Here are some tips on emergency savings, from NerdWallet, Investopedia and other sources: In the current interest rate climate, it isn't hard to find annual returns of 4% or better on your emergency savings account, if you know where to look. One option is high-yield savings accounts. The best rates tend to come from online banks, which have relatively low overhead and are competing for your business. Another choice: money market accounts. They combine features of checking and savings accounts. They can have high balance requirements, but competitive rates often top 4%. It's tempting to open an emergency savings account at your everyday bank. But that convenience 'can be a double-edged sword,' Taube said, because the money is there for the taking. A better idea, he said, is to 'go through the steps of opening a separate account with a separate financial institution somewhere,' as a way to put your emergency savings out of sight, if not out of mind. That way, you're less likely to raid the account. If you open an emergency fund and make contributions more or less at random, you may struggle to build savings. Automatic contributions can help you amass savings methodically. An employer may allow you to direct-deposit part of your paycheck into an emergency savings account, or you can set up automated transfers yourself. As Taube notes, a mere $10 a week adds up to more than $500 after a year. This article originally appeared on Palm Beach Post: Emergency savings matter in a recession. Here's a number to aim for.
