History Says Predicting a Recession Is Risky. Here's What to Do Instead.

The stock market seems to be going through the possible beginnings of a correction. The S&P 500 index (SNPINDEX: ^GSPC) is down more than 1% in the past month, including a decline of 2.5% since its record high on October 6. The tech-heavy Nasdaq-100 index has dropped by about 5% in the past month, with about a 7.5% decline since Oct. 6.

Tech stocks have been hit by investor worries about the artificial intelligence (AI) boom. Some investors are questioning whether we're in an AI bubble and whether the massive capital expenditures by major AI hyperscalers will really pay off. Rising interest rates and high oil prices resulting from the Iran war have also dampened investor enthusiasm.

Does this mean we're bound to have a recession soon? Not necessarily. Predicting a recession is hard, and most long-term investors should stay focused on the fundamentals of the stock market: buy-and-hold investing in a diversified portfolio of high-quality stocks.

Let's look at why a recession might not be coming soon -- and how to approach investing either way.

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No recession? GDP growth has been strong

The word "recession" is sometimes used in casual conversation by people who are concerned about the economy, the job market, or the cost of living. But there's a technical term for it. A recession is not just one bad day or bad month on Wall Street.

A recession means the entire economy is shrinking, or "receding," for several months or more. Recessions are generally measured as a decline in gross domestic product (GDP) for two or more quarters (three-month periods).

Right now, that's not happening. The U.S. economy is not shrinking, it's growing. According to the latest data from the federal Bureau of Economic Analysis (BEA), the U.S. GDP grew by 2.2% during April, May, and June of 2026. A Federal Reserve survey of professional economic forecasters in August found that U.S. real GDP (adjusted for inflation) is expected to grow by 2.1% to 2.4% during 2026 to 2029.

What if we don't get a recession for the next few years? It's possible that the economy could just keep chugging along. But even if the experts are wrong and GDP hits an unexpected downturn, that shouldn't necessarily change your investment plans.

Why invest in the S&P 500 -- in good and bad economic times

The S&P 500 index is one of the most-watched lists of stock tickers, because it includes the top 500 largest publicly traded companies in America. Those companies make up about 80% of the total market value of the U.S. stock market. When the economy is doing well, these large-cap stocks tend to do well. When the economy slows, the S&P 500 tends to decline.

It's true that "the stock market is not the economy," but the S&P 500 is a decent barometer. If American consumers cut back on spending, that shows up in big retail stocks and airline stocks. If American home buyers stop borrowing money to buy new homes and cars, that shows up in bank stocks, homebuilder stocks, and automaker stocks. If the AI boom really is a bubble that's about to burst, major tech names will likely go through double-digit declines that could drag down the rest of the S&P 500 index.

But if you look at the very long run, the S&P 500 is one of the best ways to invest -- through good times and bad. Since 1928, right before the worst stock market crash and the worst economic depression in American history, the S&P 500 has delivered average annual returns of 9.98%. Even if you invest in stocks right before a big crash, you'll often make excellent returns in the long run.

The Vanguard S&P 500 ETF (NYSEMKT: VOO) has delivered average annual returns of 15.3% for the past 10 years. That included a serious year-long bear market in 2022.

It's understandable that many people are concerned about the future of the economy. But try not to worry too much. Even with short-term economic problems and stock market crashes, the stock market (so far) has always recovered and reached new highs. If you're in it for the long haul, buying stocks via low-cost S&P 500 ETFs is often one of the smartest moves you can make -- whether the next recession hits tomorrow, or not for several more years.

Ben Gran has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.