Everything you need to know about a recession
Economic downturns and falling stock markets can bring hardship and fear. Here’s what you should — and shouldn’t — do when a slump looms.
The Republic
Stock prices initially rebounded April 8 after getting slammed in the aftermath of President Trump’s recent tariff announcement, but the morning rally fizzled later in the day.
The widely followed Standard & Poor’s 500 index, which had slumped about 12% over the prior three trading sessions, jumped 4% at the opening on April 8 but ended the day down 1.6%.
Investors continue to adjust to a more subdued outlook for the economy, while consumers brace for higher prices and likely job cuts, and many businesses attempt to meet new challenges.
Trump’s new tariffs or taxes on imported goods are designed to generate more revenue for the federal government, rejuvenate American manufacturing and rectify chronic trade imbalances faced by the United States.
But the new tariffs were higher than anticipated, stoking fears of an economic downturn, rising unemployment and other disruptions over the rest of 2025, if not longer.
Are wide stock market swings likely to continue for a while?
Probably. The last four trading sessions have been marked by high volatility, and that could remain the pattern for at least a couple more weeks, as investors try to make sense of the new economic order. It usually takes a while for the dust to settle after major changes or shifts like the Trump tariff announcement.
Dave Sekera, chief U.S. market strategist at investment researcher Morningstar, said he didn’t know what caused the initial surge on Wall Street on April 8. It might be the start of a “relief rally” as investors warm up to stocks trading at lower prices, or it could be attributable to other factors. “I don’t know why,” he said during a presentation.
Are stocks in a bear market — and what does that mean?
The term describes a period of falling prices overall, to where stocks or market barometers are down at least 20%.
What is a stock market correction?
Another term, “correction,” refers to slumps of at least 10%. With the S&P 500 now off nearly 19% from its peak in February, it’s now in a correction and nearing bear-market territory.
How do you know if you are in a stock market crash?
“Crash” is another term that you hear occasionally, but that one is less precise, though it certainly describes sharp setbacks like the 57% market slump from 2007 to 2009.
Do lower stock prices create an opportunity? In what segments of the economy?
As prices drop generally, that makes various areas of the stock market more attractive, and bargain hunters eventually move in — we just don’t know when or under what circumstances.
In terms of current opportunities, Sekera said he finds small-capitalization or “small-cap” stocks more attractive. In Wall Street parlance, these are generally companies whose shares are worth somewhere between roughly $250 million and $2 billion or so — not true penny stocks that might be all but worthless.
Small-cap stocks are “very attractive,” trading about 30% below where Morningstar estimates their fair value, he said. That’s not the case with giant tech-focused growth stocks, which led the market higher over the past year, though they too are becoming more reasonably valued as their prices slide further.
Does the stock market decline signal a recession?
Possibly, but not necessarily. Recessions, or significant economic contractions that last at least several quarters, are part of the normal economic cycle.
The U.S. has endured nine prior downturns since 1960, lasting about a year on average. Economists at the National Bureau of Economic Research make the official call on whether we’re in a recession or not, typically months after the onset of a slump.
Have expectations increased that we’re heading into a recession?
Yes, though prognosticators aren’t of agreement and many of them could be wrong. JP Morgan recently raised its recession odds to 60% for this year, and a CNBC flash survey of corporate CEOs found that 69% of these respondents now expect a near-term recession.
But Preston Caldwell, Morningstar’s chief U.S. economist, doesn’t expect a near-term recession. Rather, he sees economic growth slowing to 1.2% in 2025 and 0.8% in 2026, with 40% to 45% odds of a recession. He expects the economy to grow a bit faster, around 2.1%, in 2027. A recession is not here, but growth is trending lower, he said.
Is now the time to adjust my investment portfolio?
Again, possibly but not necessarily.
“Giving advice to not panic during severe market downturns is often customary and can frankly seem a bit boiler-plate,” said Mark Zabicki, chief investment officer at LPL Financial. “But it is perhaps the most important piece of advice financial consultants can give — because it is during times of market turmoil when many investors get it wrong.”
Market timing is difficult to do, even for professionals.
How about rebalancing a portfolio?
This involves making modest adjustments, and it can be a timely, smart move. Rebalancing often involves buying stocks, funds or other assets that have tumbled in price, but it also means venturing into areas that you might have neglected.
For example, diversifying globally is becoming more important, said Niladri ‘Neel’ Mukherjee, chief investment officer at TIAA Wealth Management.
That means moving at least a modest amount of your asset mix into foreign stock and even foreign bond markets, which usually is accomplished more easily using international mutual funds or exchange-traded funds.
How else can I prepare for a recession?
That largely depends on individual circumstances, but wise moves might include: Keeping debt at modest levels, paring unnecessary expenses and securing your income as much as possible, such as by starting to look for another job if you think your employment prospects are questionable.
Now also might be a good time to take another look at your budget. Everyone should strive to hold six to 12 months of cash to ride out job losses or other financial upheavals. This should be held in money-market funds, short-term certificates of deposit or other interest-bearing instruments that are easily accessible.
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