Should You Buy Stocks If a Recession Is Coming in 2026? Here's What History Shows.

Most economists don't expect the U.S. economy will enter a recession in 2026. J.P. Morgan (NYSE: JPM) Global Research projects the likelihood of a recession this year at only 35%. The Federal Reserve Bank of New York's probability of a recession by November 2026 based on Treasury spreads is even lower.

They could be wrong, though. Should you buy stocks if a recession is indeed coming this year? Here's what history shows.

Image source: Getty Images.

A clear pattern

The S&P 500 (SNPINDEX: ^GSPC) was established in its current form with 500 companies in March 1957. Since then, the U.S. has experienced 10 recessions. How did the index perform during the years a recession began?

It took only five months for the first recession to occur following the creation of the S&P 500. The Federal Reserve had increased interest rates to combat rising inflation. A recession began in August 1957 that lasted for eight months. The S&P 500 ended down 11% in its inaugural year.

Two mild recessions came over the next 12 years, one beginning in 1960 and another in 1969. The S&P 500 fell by 2% in 1960 and by nearly 11% in 1969.

The Arab oil embargo that began in 1973 led to a more severe U.S. recession. Unsurprisingly, the impact on the stock market was significant, with the S&P 500 plunging 19%.

A "double-dip" recession hit the U.S. economy beginning in 1980. While the first part of this recession lasted only six months, the economy went into recession again in July 1981. The S&P 500 declined during the recessionary period in 1980, but rebounded to end the year up by almost 24%. However, the index fell nearly 8% the following year with the second part of the double-dip recession.

Other U.S. recessions began in 1990 and 2001, with the S&P 500 declining both years. The most recent two recessions were anomalies, though. The Great Recession began in December 2007. Although the S&P 500 gained over 4% that year, it began to tumble in the final few months and plunged nearly 41% in 2008. The S&P 500 also sold off sharply during the COVID-19 recession of 2020. However, the recession and the downturn were short-lived. The S&P ended 2020 up by roughly 16%.

The clear pattern from these 10 recessions is that the S&P 500 almost always performs dismally during an economic downturn. The only cases where the index delivered positive gains during a year a recession began were when the recession either lasted for only a few months at the beginning of a year or began at the end of a year.

An even clearer pattern

There is a clear pattern for the S&P 500's performance during years that recessions started. However, I think an even clearer pattern emerges when we expand our time horizon. Check out the table below:

Data source: YCharts. Table created by author.

In most cases, the S&P 500 was up by a solid percentage within 5 years following the start of a recession. The index also delivered strong returns over the next 10 years in each case except the recession in 2001 that occurred after the dot-com bubble burst. This period included the financial crisis of 2007 through 2009, which was one of the worst economic challenges in U.S. history.

Overall, the average gain for the S&P 500 five years after the beginning of a recession has been almost 54%. The average gain 10 years later of almost 113% is even more impressive.

An easy answer

Let's return to our initial question: Should you buy stocks if a recession is coming in 2026? If history is an guide, the answer is easy – at least if you're a long-term investor. Buying stocks typically pays off over the next five-to-10 years and often does so handsomely.

Maybe the U.S. economy will enter a recession in 2026; maybe it won't. However, whether you invest in an index fund that tracks the S&P 500 or build your own diversified portfolio of stocks, you'll probably be in good shape over the long run regardless of what happens with the economy this year.

JPMorgan Chase is an advertising partner of Motley Fool Money. Keith Speights has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends JPMorgan Chase. The Motley Fool has a disclosure policy.