What Is a Recession, and How Do Markets Usually Behave?

Updated November 2026

What is a recession? It is a broad fall in economic activity that lasts more than a few months, felt in output, jobs and incomes together. This guide gives the UK and US definitions and explains how a recession is measured and dated. It then sets out what stock markets did around every US recession since 1973, with the UK alongside. It describes the past and does not predict the next recession.

What is a recession?

A recession is a significant, broad decline in economic activity that lasts more than a few months. In the UK, the common rule of thumb is two consecutive quarters of falling real GDP.

Those two sentences hold two different tests.

The UK test is mechanical. The Office for National Statistics (ONS) describes a technical recession as "widely regarded as two consecutive quarters of negative growth". The rule has no official status, and the ONS avoids saying when the UK is or is not in recession.

The US test is a judgement. The National Bureau of Economic Research (NBER) dates a recession when a decline is significant, spread across the economy and lasts more than a few months. Its committee weighs depth, diffusion and duration together, so an extreme reading on one can make up for a weaker one on another. It also says plainly that two small quarterly falls in real GDP are not enough on their own.

So what does recession mean? A shrinking economy, felt in jobs and incomes as well as GDP. The UK rule checks one number; the NBER test looks at the whole economy.

What causes a recession, and how is one measured?

There is no single cause. The recessions in the table further down started in different ways:

• Financial crises and demand shocks. The 2007 to 2009 recession, the longest in the US since the Second World War, had the housing market at the centre of the crisis.
• Policy tightening. The 1980 and 1981 to 1982 US recessions were both triggered by tight monetary policy aimed at high inflation, with the federal funds rate allowed to approach 20%.
• Supply shocks. During the 1973 to 1974 oil embargo, the price of oil nearly quadrupled, from $2.90 a barrel to $11.65 by January 1974. Rising prices with falling output is stagflation, covered in our stagflation guide.
• Sudden outside shocks. The 2020 recession followed the pandemic and the public health response. NBER still called it a recession despite its short length, because the fall was so deep and so broad.

How it is measured. NBER's committee watches monthly measures of real income, employment, consumer spending, sales and industrial production, plus real GDP and real gross domestic income each quarter. In the UK, attention falls on real GDP from the ONS.

When the UK knows. The ONS publishes a first quarterly estimate of GDP about six weeks after a quarter ends: the first estimate for July to September 2025 came out on 13 November 2025. Estimates are revised as more data arrive. The ONS says its revisions tend to be small and unbiased, but a small rise can still become a small fall, or the reverse.

When the US knows. NBER waits until it is sure. In its own record, the gap between a turning point and its announcement has run from four months (the February 2020 peak, announced on 8 June 2020) to 21 months (the March 1991 trough, announced in December 1992). The December 2007 peak was announced on 1 December 2008. By the time a US recession is official, it is often well under way, or over.

Because official data arrive late, analysts also watch faster signals such as the yield curve, the gap between long-term and short-term government bond yields; our yield curve guide explains what an inversion does and doesn't signal. Reading these signals is part of fundamental analysis, which studies the economy behind prices.

How do markets usually behave in a recession?

Stock markets have usually fallen around recessions, by very different amounts, and not always first. The table covers every US recession since 1973, using NBER's peak and trough months. S&P 500 figures are closing levels from tables of S&P 500 bull and bear markets built on Standard & Poor's data. The UK column shows whether UK real GDP, as published by the ONS, fell for two or more quarters in a row, and the largest fall in UK share prices around it, from the OECD's monthly share price index for the UK.

How to read it. S&P 500 figures are daily closes of the price index, without dividends. UK recessions are runs of two or more falling quarters of real GDP in the ONS series of 30 September 2026. UK share prices are monthly averages, which smooth out the worst days, so UK falls look smaller than daily data would show and do not compare directly with the S&P 500.

What the table shows: the S&P 500 fell by between 17.1% and 56.8% around these recessions. In four of the seven, the fall began two to twelve months before the recession did. Measured from the old peak, the index took from a few months (1980 and 2020) to about seven and a half years (1973 to 1980) to get back.

Seven episodes are not a law. Each recession had its own cause, and the UK column shows that UK shares did not simply follow US shares: around 2001 they fell by almost half without any UK recession at all. Nothing here predicts the next recession or how markets might behave in it.

Other assets: government bonds. US 10-year Treasury yields ended six of these seven recessions lower than they started, comparing monthly averages for the NBER peak and trough months. The exception was 1973 to 1975, when the yield rose from 6.73% to 7.73% while inflation was high, the case our stagflation guide examines.

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Recession vs bear market vs correction

A recession describes the economy. A correction and a bear market describe prices. They often overlap, but one can happen without the others.

The same S&P 500 tables use those two thresholds. By those lines, the 1980 and 1990 recessions came with corrections, not bear markets: falls of 17.1% and 19.9%. The reverse also happens. The S&P 500 fell 33.5% between August and December 1987, yet NBER dates no recession between November 1982 and July 1990.

FAQ: recession questions answered

What does recession mean?

A recession means the economy is shrinking across the board for more than a few months, not just in one sector. Output, jobs, spending and incomes fall together. The UK shorthand is two quarters in a row of falling real GDP; in the US, NBER weighs how deep, broad and long the decline is.

What happens in a recession?

Businesses produce and sell less, so hiring slows and unemployment usually rises. Household incomes and spending come under pressure. In the US, unemployment reached nearly 11% late in 1982 and peaked at 10% in October 2009. Stock markets have usually fallen around recessions, by very different amounts, as the table above shows.

How do you know if the UK is in a recession?

Watch the ONS first quarterly estimate of GDP, published about six weeks after each quarter ends. If real GDP has fallen for two quarters in a row, the UK meets the rule of thumb. Early estimates can be revised as more data arrive, so a borderline answer can change later. The ONS itself does not declare recessions.

How long do recessions last?

In the US, recessions since 1945 have lasted 10.3 months on average from peak to trough, on NBER's figures. The range is wide: the 2020 recession lasted two months and the 2007 to 2009 recession 18. In the UK, real GDP fell for five quarters in a row in 1980 to 1981, 1990 to 1991 and 2008 to 2009.

Do stock markets always fall in a recession?

Around every US recession since 1973, the S&P 500 fell by at least 17% at some point, but size and timing varied. In four of the seven, the fall began before the recession. Falls ranged from 17.1% in 1980 to 56.8% in 2007 to 2009. Past patterns do not predict the next one.

Conclusion

A recession is a broad fall in economic activity lasting more than a few months. The UK shorthand is two quarters of falling real GDP, read from ONS estimates that can be revised; the US relies on NBER's wider judgement, announced months later. The market record since 1973 agrees on one point only: US stocks fell around every recession. The size, timing and recovery varied widely, from a 17% fall to a 57% one, and from a few months to about seven and a half years to regain the old peak. That record describes the past and is not a forecast. If you follow index, gold or currency markets through these cycles, see how index, gold and currency trades are priced on Ouinex.

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Sources

1. ONS, Statistically Speaking blog: The 'R' word, what exactly is a 'recession' anyway? (20 February 2023)
2. ONS, Statistically Speaking blog: Uncertainty and the 'r' word, what exactly is a 'recession'? (Darren Morgan, 11 November 2022)
3. NBER: Business Cycle Dating
4. NBER: Business Cycle Dating Procedure, Frequently Asked Questions (indicators, the two-quarter rule, announcement lags)
5. Federal Reserve History: The Great Recession (Robert Rich, 2013; dates, unemployment peak)
6. Federal Reserve History: Recession of 1981-82 (Tim Sablik, 2013; causes, unemployment peak)
7. Federal Reserve History: Oil Shock of 1973-74 (Michael Corbett, 2013)
8. NBER: Business Cycle Dating Committee announcement, 8 June 2020 (the February 2020 peak)
9. ONS release calendar: GDP first quarterly estimate, UK: July to September 2025 (13 November 2025)
10. NBER: US Business Cycle Expansions and Contractions (peak and trough dates, average durations)
11. Yardeni Research: Stock Market Historical Tables, Bull and Bear Markets (28 October 2022; S&P 500 data from Standard & Poor's and Haver Analytics)
12. ONS: Gross Domestic Product, chained volume measures, seasonally adjusted, series ABMI (release of 30 September 2026)
13. FRED, Federal Reserve Bank of St. Louis: Financial Market: Share Prices for United Kingdom (OECD Main Economic Indicators, monthly)
14. FRED, Federal Reserve Bank of St. Louis: Market Yield on US Treasury Securities at 10-Year Constant Maturity (GS10, monthly)