What Happens to Stocks in a Recession? Historical Data & What to Do
What happens to stocks in a recession? Stocks generally fall during recessions as earnings drop and investors price in weaker future profits. The S&P 500 has declined an average of 36% during recessions historically. However, every recession in history has been followed by a recovery to new highs — making the timing of when you sell and when you re-enter the most important (and most difficult) decision.
HISTORICAL RECESSION STOCK MARKET DATA
RECESSION
S&P 500 DECLINE
DURATION
RECOVERY TIME
Dot-com bust (2000-02)
-49%
31 months
7 years to new highs
Financial crisis (2007-09)
-57%
18 months
4 years
COVID-19 (2020)
-34%
2 months
5 months
Mild recession (avg)
-24%
10 months
2 years
WHICH STOCKS HOLD UP BEST IN RECESSIONS
Defensive stocks with stable, non-discretionary revenue perform best:
Consumer staples: People buy food, medicine, and household goods regardless of economic conditions. KO, PG, WMT tend to fall far less than the market.
Healthcare: Illness doesn't wait for economic recovery. JNJ, UNH, ABBV are relatively recession-resistant.
Utilities: Electricity and water bills are paid even in recessions.
WHICH STOCKS FALL HARDEST
Cyclical consumer discretionary: Holidays, restaurants, luxury goods, automotive — spending these categories is cut first.
High-beta tech: TSLA, PLTR, RIVN typically fall 40-70%+ in severe recessions.
Financials: Banks face loan defaults and reduced lending activity.
WHAT LONG-TERM INVESTORS SHOULD DO
The data is unambiguous: investors who stayed invested through every historical recession generated better long-term returns than those who sold and waited to re-enter. The challenge is not knowing when the bottom has been reached. Investors who sold at the COVID bottom in March 2020 missed the fastest recovery in market history.
Be greedy when others are fearful, fearful when others are greedy. — Warren Buffett (who deployed capital during the 2008 crisis)
FREQUENTLY ASKED QUESTIONS
Should you sell stocks before a recession?
Research consistently shows that selling before a recession and timing the re-entry is extremely difficult. Studies show that missing just the 10 best days in the market over 20 years roughly halves your return — and those best days often occur during or immediately after the worst periods. Most investors are better served maintaining their positions and continuing to invest regularly.
What is the best stock to own in a recession?
Consumer staples companies like Coca-Cola (KO, 83 OVR), Procter & Gamble (PG, 85 OVR), and Walmart (WMT, 86 OVR) are historically among the most resilient in recessions. Johnson & Johnson (JNJ, 85 OVR) and other defensive healthcare stocks also tend to outperform. These are the portfolio defenders — they protect your wealth when your growth stocks are falling.
Do stocks always recover after a recession?
Every recession in US history has been followed by a full market recovery and new highs. However, the timeline varies dramatically — from 5 months (COVID 2020) to 7+ years (dot-com). Individual stocks do not always recover — companies can go bankrupt in recessions. Broad market index funds have recovered from every single recession in history.
Build your investing roster
Free platform. Stocks rated like player cards. No jargon.
Educational purposes only. MarketMVP OVR scores and ratings are educational tools — not financial advice or recommendations. Always do your own research. Full disclaimer