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What Does Negative GDP Really Mean?

August 1, 2022 - 2 MINUTE READ

A recession is defined as two consecutive quarters of negative gross domestic product growth but there are more indicators to consider than just GDP. If you have been watching the news, it can feel like most of the reporting being done around the US economy has been negative.

 

One of the limitations of GDP is that is it a backward-looking indicator, with the latest numbers telling us what happened between April and June. With the stock market being forward-looking, this data doesn’t tell us where we’re headed in the future1. According to the Bloomberg S&P 500 Index total annual return, the historical data shows us that the stock market has generally risen after 2 consecutive quarters of negative GDP1.

 

One of the challenges investors face during these times is to stay the course and remain invested. Headlines today are reporting the highest inflation in 41 years and stocks are down 14.9% from their peak as of July 27th1. Since none of us have a crystal ball, what we do know from history is that recessions come and go. Unless something major has changed in your life, the best course of action is to usually stay invested.

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