Recession

Common Rule of Thumb: Two consecutive quarters of negative GDP growth. However, the official definition is broader.

NBER Definition: A significant decline in economic activity across the economy, lasting more than a few months, visible in: - Real GDP - Real income - Employment - Industrial production - Wholesale-retail sales

Yield Curve Inversion When short-term rates exceed long-term rates. Has preceded every recession since 1955.

Leading Economic Indicators Unemployment claims, building permits, manufacturing orders, etc.

Consumer Confidence Falling confidence often foreshadows reduced spending.

Corporate Profits Declining profits typically precede broader economic weakness.

Before Recession: - Defensive stocks outperform (utilities, healthcare, consumer staples) - Bonds rally as investors seek safety - Fed typically cuts rates

During Recession: - Stocks often bottom before the recession ends - The best buying opportunities occur when fear is highest

Recovery: - Cyclical stocks lead (tech, consumer discretionary) - Small caps often outperform