U.S. officially enters technical recession, look back at 5 past recessions

By: @milesdeutscher

Source: Twitter

The US is now officially in a technical recession after negative GDP growth (-0.9%) in the second quarter.

Let's take a look at 5 past recessions, and how this one is different.

A recession is defined as "a brief period of economic decline during which trade and industrial activity decreases, usually manifested by two consecutive quarters of decline in GDP."

There are two types of recessions:

• Recession: A phase of decline that lasts for a considerable period of time.

• Technical recession: GDP declines in a row (two consecutive quarters).

The U.S. is currently in a "technical recession," according to GDP figures released today.

1980-1982

During this period, two recessions occurred. The worst of these occurred in 1982.

• Duration: 22 months in total

• S&P 500 performance: -25%

• Recovery time: 15 months

This recession was caused by the Federal Reserve raising interest rates in order to curb inflation.

High interest rates put pressure on parts of the economy that rely on borrowing, such as manufacturing and construction, leading to a recession.

Sounds similar to the current situation.

1990-1991

This is considered a "flash recession" with a quick V-shaped recovery (similar to the 2020 COVID-19 crash).

• Duration: 9 months

• S&P 500 performance: -25%

• Recovery time: 9 months

2001 (Internet bubble)

The frenzy surrounding U.S. technology stocks in the 1990s led to massive overvaluation, creating a bubble that eventually burst in 2001.

• Duration: 8 months

• Nasdaq performance: -71%

• Recovery time: 14 years (S&P 500: 7 years)

The 2001 crash was so severe that it took the S&P 500 and Nasdaq 7 and 14 years to recover, respectively.

Some critics have compared the high valuations of cryptocurrencies to tech stocks in the late 90s.

2008 (Great Recession)

It was one of the worst financial meltdowns in history, triggered by the 2006 subprime mortgage crisis.

• Duration: 18 months

• S&P 500 performance: -55%

• Recovery time: 4 years

This has led to severe liquidity problems for banks, hedge funds and insurance companies.

In October 2008, Congress approved a $700 billion bank rescue package, followed by a $787 billion stimulus package to avert a global recession.

2020 (COVID-19 collapse)

A short-term crash sparked by the global coronavirus pandemic panic. Unprecedented monetary policy has inspired a V-shaped recovery.

• Duration: 4 months

• S&P 500 performance: -35%

• Recovery time: 6 months

The current situation is unique given the aggressive monetary policy post-COVID-19.

Historically, in past recessions, if you invested in negative GDP quarters and took profits when GDP started to recover, you would have averaged a 31% gain.

So far, monetary policy and recession duration/severity look most similar to the 1982 recession, which took 15 months to recover from.

@GarethSoloway thinks the confirmation of a recession is bullish for stocks and Bitcoin in the short term, as the Fed can't raise interest rates much now.

The GDP figure was -0.9%. The market sold off and then bounced back as investors liked the falling dollar and the possibility that the Federal Reserve would stop raising interest rates significantly. So, until the market realizes that the Fed is not going to get us out of a deep recession, let's go ahead and take the risk. #bitcoin

— @GarethSoloway

However, we should not gloss over the adverse macroeconomic effects of recessions, especially when considering their long-term effects.