Mutual funds, like everything else, are dramatically affected by a recession. Some take off like rockets, but the vast majority end up taking a hit… which means the investor takes a hit too. Are we still in a recession here in mid-2011? If it looks like a duck, and walks like a duck, and quacks like a duck…is it still a recession? Here’s a report that says the duck may be something else:
The Business Cycle Dating Committee of the National Bureau of Economic Research met in Cambridge on September 19, 2010 by conference call. At its meeting, the committee determined that a trough in business activity occurred in the U.S. economy in June 2009. The trough marks the end of the recession that began in December 2007 and the beginning of an expansion. The recession lasted 18 months, which makes it the longest of any recession since World War II. Previously the longest postwar recessions were those of 1973-75 and 1981-82, both of which lasted 16 months.
In determining that a trough occurred in June 2009, the committee did not conclude that economic conditions since that month have been favorable or that the economy has returned to operating at normal capacity. Rather, the committee determined only that the recession ended and a recovery began in that month. A recession is a period of falling economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. The trough marks the end of the declining phase and the start of the rising phase of the business cycle. Economic activity is typically below normal in the early stages of an expansion, and it sometimes remains so well into the expansion.
The committee decided that any future downturn of the economy would be a new recession and not a continuation of the recession that began in December 2007. The basis for this decision was the length and strength of the recovery to date.
Last Four Recessions and their Durations
December 2007 to June 2009:
March 2001 t0 November 2001:
July 1990 to March 1991:
July 1981 to November 1982:
How does this affect your mutual funds? All the money printing has helped the best mutual funds recover most – if not all – of their dramatic losses during the last “recession” that ended in mid-2009 (according to the experts). But don’t sit on your hands and hold your breath. Keep a close eye and watch for problems on the horizon so you don’t end up seeing your best mutual funds turn into your worst!