Five Years Later, Not One Year Earlier: What 70 Years of Market Data Really Says About Recessions and Stock Returns

What Actually Happens When a Recession Hits

A recession represents a significant contraction in economic activity, typically defined by declining GDP and rising unemployment. But here’s what the market data reveals: The year a recession starts is often the worst time to measure investment success. Between 1957 and 2026, the U.S. has experienced 10 distinct recessions. During the calendar year each recession began, the S&P 500 delivered dismal returns—and sometimes catastrophic ones.

Let’s be honest: the immediate impact was brutal. The 1973 oil embargo recession hammered stocks with a 19% decline. The 2008 financial crisis saw a 41% plunge in 2009. Even the 1969 recession produced nearly an 11% drop. Yet here’s where the narrative changes dramatically.

The Real Story Emerges at Year Five and Beyond

Most investors make a critical error: they obsess over near-term performance. The market data shows something strikingly different when we expand our time horizon.

Five years after each recession began, the average return climbed to 54%. Think about that—not 5%, not 10%, but 54% on average.

The evidence is overwhelming:

• August 1957 recession: down 11% that year, but up 24% five years later, up 103% in ten years
• November 1973 oil embargo: down 1% initially, up 64% within ten years
• January 1980 double-dip recession: up 53% within five years, rocketing 223% over ten years
• July 1990 recession: up 50% in five years, an astounding 306% over ten years
• December 2007 (Great Recession): recovered to deliver -5% five years later, then +77% at the ten-year mark
• February 2020 (COVID recession): the shortest recession on record, delivering 309% gains by 2025

The ten-year average tells the real story: 113% total return. That means an investor who bought $10,000 worth of S&P 500 index stocks at the worst possible moment—right as a recession began—would have roughly $23,000 a decade later.

Why Recessions Are Buying Opportunities, Not Warnings

The historical record is unambiguous. Yes, markets decline during recessions. Yes, losses sting psychologically. But investors who maintained their conviction and stayed diversified generated extraordinary wealth over the following five to ten years.

The only real outlier was the 2001 recession following the dot-com bubble burst. That period delivered negative returns even ten years later, but this was an exceptional case following an unprecedented valuation bubble.

Compare that to the majority of recession cycles: they represent temporary dislocations in an otherwise upward-trending market. The U.S. economy has grown substantially over seven decades. Recessions are speed bumps, not permanent derailments.

The Verdict for Long-Term Investors

Current economic forecasters suggest the probability of a 2026 recession remains relatively modest—major financial institutions estimate roughly 35% odds. But whether it arrives or not becomes almost irrelevant for patient investors.

History doesn’t provide a guarantee. Past performance never ensures future results. However, the 70-year record demonstrates a consistent, powerful pattern: investors who accumulated stocks during recession years and held them for five-to-ten years generated substantial returns in the vast majority of cases.

Whether you construct a diversified portfolio of individual stocks or simply track an S&P 500 index fund, the data suggests long-term wealth accumulation works remarkably well—even when you’re buying at the absolute worst economic moment.

The math is simple. The psychological discipline required to act on it? That’s the real challenge.