Should You Buy Stocks If a Recession Is Coming in 2025? Here's What History Shows.

The Federal Reserve Bank of New York regularly attempts to calculate the probability of a U.S. recession over the next 12 months using the difference between the 10-year and three-month Treasury rates. Its most recent analysis estimated a roughly 33.6% chance of a recession in the new year.

This percentage might not seem worrisome to many people. However, the New York Fed's calculated probability of a recession wasn't much higher in late 2007 and early 2008 -- the beginning of what was later called the Great Recession.

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The not-so-encouraging reality is that a 1 in 3 chance of a recession over the next 12 months is much higher than the average probability estimated by the New York Fed. Should you buy stocks in 2025 if a recession is coming? Here's what history shows.

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Bad economy, bad stock market

At least on the surface, this is an easy question to answer. A bad economy nearly always translates to a bad stock market.

The chart below shows the percentage decline of the S&P 500 (SNPINDEX: ^GSPC) from its previous peak going back to early 1950. (Technically, the S&P 500 didn't exist in its current form with 500 companies represented until 1957, but this chart includes a few years of data from its predecessor index.) The gray areas on the chart reflect periods when the U.S. economy was in a recession.

^SPX data by YCharts.

Take a look at those gray areas. The S&P 500 fell sharply in nearly every one of them. In most cases, the index began to drop before the recession started. Stocks often (although not always) began to rebound before the end of a recession.

The logic seems simple: Stocks almost always fall during a recession. If an investor had good reason to believe a recession was on the way, it would arguably make sense not to buy stocks at that time.

Is a recession likely in 2025?

That leads to a natural follow-up question: Is a recession likely in 2025? The consensus among economists is "no."

We've already seen the New York Fed's calculated probability of 33.6% that a recession could come over the next 12 months. This estimate implies a nearly two-thirds chance a recession isn't on the way. Las Vegas bookies would love those odds.

An end-of-the-year survey of economists conducted recently by the Securities Industry and Financial Markets Association's Economist Roundtable found an average prediction of 1.9% gross domestic product (GDP) growth in 2025. That's lower GDP growth than in 2024, but positive economic growth means no recession.

However, many economists do acknowledge some uncertainty -- much of it centered around potential policies of the incoming Trump administration. For example, S&P Global's global chief economist Paul Gruenwald wrote in November, "The global macroeconomic outlook is hostage to the policy implementation of the new U.S. administration." He added, "Potentially large changes in fiscal, trade and immigration policy from the U.S. are significant unknowns at this juncture."

Some economists think President-elect Trump's policies could make a recession more likely. John Hopkins University economics professor Steven Hanke said in an interview with NYSE TV in November that the U.S. "probably will experience a recession next year." He specifically warned about the potential for Trump's tariffs and trade policies to "be a big negative for the economy."

Should you buy stocks in the new year?

Even if a recession is on the way in 2025, does that mean you shouldn't buy stocks in the new year? I don't think that's the important lesson we should learn from history.

Sure, the stock market is highly likely to decline (perhaps significantly) if a recession occurs. However, no investor can be certain about how long the pullback will last.

If you try to time the market, you could miss out on the opportunity for nice gains. Recessions often present great opportunities to buy the stocks of well-run companies at discounted prices.

Patient investors can (and I'd argue should) buy stocks in 2025, regardless of whether or not a recession is coming. The most important lesson history teaches is that the S&P 500 rises over the long run -- and so do the best stocks.

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Keith Speights has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends S&P Global. The Motley Fool has a disclosure policy.