10 Things You Should Know About Recessions

The economy is not the stock market. In fact, the stock market can begin recovering while the economy is still contracting.

1 What’s in a name? – A recession is a significant decline in economic activity that affects things like economic output, employment, income, production and spending.

2 A recession is not the same as a down market – The stock market is forward-looking and reflects expectations about where companies and the economy are going. Economic data, on the other hand, tells us largely what has already happened. This is why markets can fall before a recession begins and recover before it ends.

3 Not all recessions are created equal – Canada's recessions have varied dramatically. Economic declines have ranged from approximately 1.1% in 1974–75 to 12.7% during the COVID recession in 2020.

4 What goes down eventually comes back up – Recessions are a normal part of the economic cycle. Canada has experienced 11 recessions since 1947, but periods of economic growth have historically lasted much longer than periods of contraction.

5 Shorter than you might think – Since 1974, Canadian recessions have lasted anywhere from two months to just over two years. The 2020 recession was Canada's shortest on record—and its deepest since the Great Depression.

6 The Canadian consumer matters – Canadian households carry significant debt, making employment, interest rates and mortgage costs particularly important to our economy. When household budgets get squeezed, spending can slow and affect the broader economy.

7 What happens elsewhere matters here – Canada is a relatively small, trade-dependent economy. Economic conditions in the U.S., global demand, commodity prices, currencies and geopolitical events can all have a significant impact on our economy.

8 Not all stocks are created equal – Recessions affect industries differently. This is particularly important in Canada, where financials, energy and materials currently make up almost 70% of the S&P/TSX Composite Index. Diversifying globally can reduce your dependence on what happens in a few Canadian industries.

9 The market doesn't wait for the economy – During the 2008–09 financial crisis, equity markets began recovering before Canada's recession officially ended. Waiting until the economy looks good again can mean missing part of the market recovery.

10 Recessions are part of investing – We don't know when the next recession or market decline will happen. That's why a good financial plan isn't built around predicting them. It's built knowing that both recessions and market declines will happen again.

One of the biggest risks during a recession isn't the market - it's abandoning your investment strategy because of the market.

A good plan gives you something to rely on when the headlines get uncomfortable. Let's make sure you have one.