Market Blog

In probably one of the least surprising economic calls of all time, the Nation Bureau of Economic Research (NBER) officially declared an end to the longest expansion ever and the start of a new recession. As shown in the LPL Chart of the day, the record expansion lasted 128 months, twice the length of the average expansion.

The catch though—and there’s always a catch. This might have been the longest expansion ever, but the economy grew only 50% as measure by nominal GDP during these 10-plus years (including inflation), nearly the same as the average expansion, even though this expansion was twice as long.

“Here’s the big question. As the economy continues to open back up and the economic data improves, it isn’t a stretch to think this recession could be one of the quickest ever,” explained LPL Financial Senior Market Strategist Ryan Detrick. “The previous shortest recession ever was only six months in the early ‘80s, and if last week’s jobs number is the start of improving data, this recession could very well be even shorter.”

One of the top questions we’ve received as stocks soared amid a historically weak economy was how can stocks be up so much? It is so important to remember that stocks tend to rally well before a recession is over, sensing the better times ahead. In fact, we found stocks bottomed five months on average before the recession was over. If March was indeed the lows for stocks, we could be out of the recession by August, although we think it’s likely to be earlier.

Putting it all together, here’s a closer look at all the recessions since WWII, along with how earnings, gross domestic product (GDP), and the unemployment rate performed during those recessions.

We’ve been on record that this could be the shortest recession ever, as we didn’t see the typical excesses you usually see at the end of expansions, from too much spending and too much leverage, to too much confidence. This recession was self-induced to stave off the COVID-19 pandemic. For these reasons, although this recession will go down as one of the steepest on record, we do think it will also be one of the shortest.

For more of our thoughts on the economy, please read our latest Weekly Market Commentary.

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This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.

References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

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Earnings per share (EPS) is the portion of a company’s profit allocated to each outstanding share of common stock. EPS serves as an indicator of a company’s profitability. Earnings per share is generally considered to be the single most important variable in determining a share’s price. It is also a major component used to calculate the price-to-earnings valuation ratio.

Gross Domestic Product (GDP) is the monetary value of all the finished goods and services produced within a country’s borders in a specific time period, though GDP is usually calculated on an annual basis. It includes all of private and public consumption, government outlays, investments and export less imports that occur within a defined territory.

This Research material was prepared by LPL Financial, LLC.

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