Recession Indicators Flash Warning Signs; History Shows Staying Invested Pays Off Long-Term
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The Treasury yield curve, which reliably predicts recessions, is showing its most severe recession signal since 1981, indicating a 63% chance of a recession in the next 12 months.
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The S&P 500 has declined an average of 31% during past recessions. A similar drop today would erase nearly all of the index's gains since pre-pandemic highs.
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However, the S&P 500 has eventually recovered from every past recession, usually rebounding swiftly with returns averaging 40% in the 12 months after bottoming out.
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Trying to time the market by selling now and buying back in at the bottom is extremely difficult and often backfires. A "stay invested" strategy has delivered strong long-term returns despite short-term drops.
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For investors who have remained invested, $100,000 in an S&P 500 index fund in 1990 would now be worth $2.7 million even with intervening recessions and crashes.