Business Cycles and Recessions
How the economy moves through expansions and recessions, how US recessions are officially dated and why the dates come so late, and what stocks have done around them.
The short version
The economy grows in uneven waves: expansions, a peak, a contraction, and a trough. In the US, recessions are dated by a committee of the National Bureau of Economic Research, which defines one as a significant decline in economic activity, spread across the economy, lasting more than a few months. Its dates come long after the fact: the end of the 2007 to 2009 recession was announced more than a year after it happened. Stocks look ahead, so they often fall before or during a recession and rise before it's over. That makes recessions hard to invest around, even when you see them coming.
By the end of this lesson, you'll be able to
- Describe the phases of the business cycle
- Explain how US recessions are defined and dated, and why the dates arrive late
- Describe how stocks have behaved around past recessions
Why this matters
"Are we heading into a recession?" is one of the most-asked questions in finance, and one of the most anxious. Knowing how recessions work, how they're officially recognized, and how markets have behaved around them helps you respond to that question calmly, rather than with your portfolio.
The cycle
Economies don't grow in a straight line. The Business cycle. The recurring pattern of economic expansion, peak, contraction, and trough. Glossary describes the pattern: an expansion, when activity grows; a peak; a contraction, when activity falls; and a trough, after which a new expansion begins. In the NBER's dates since 1933, every recession has lasted 18 months or less, while most expansions have lasted several years.1 No two cycles are alike.
What counts as a recession
In the US, the dates of recessions are set by the Business Cycle Dating Committee of the National Bureau of Economic Research (NBER), a private research organization. It defines a Recession. A significant decline in economic activity, spread across the economy, that lasts more than a few months. US recessions are dated by the NBER. More on this term as "a significant decline in economic activity that is spread across the economy and lasts more than a few months," and weighs three things: how deep the decline is, how widespread it is, and how long it lasts. It looks at measures such as employment, real personal income, spending, and industrial production, along with GDP.2
You may hear that a recession is "two quarters of falling GDP." That's a common rule of thumb, but it isn't the official definition, and the committee looks at much more than GDP.
Official dates come late
Because the committee dates turning points from data that takes time to collect and confirm, its announcements arrive well after the fact:3
| Turning point | Announced |
|---|---|
| Peak: December 2007 (recession begins) | December 1, 2008 |
| Trough: June 2009 (recession ends) | September 20, 2010 |
| Peak: February 2020 | June 8, 2020 |
| Trough: April 2020 | July 19, 2021 |
By the time a recession is official, it may be well underway, or already over. The NBER lists 15 recessions since 1929, from the 43-month contraction that began in August 1929 to the two-month contraction of February to April 2020.1
The rest of this lesson is for members
Still to come in this lesson: What stocks did, What this means for investors, the key takeaways, and 2 quiz questions with explanations.
Membership opens every lesson in the curriculum, the capstone projects, the interactive tools, and the members-only channels in the Hyperion Entities Discord. The first lesson of every module stays free.
Go deeper
- Bull Markets, Bear Markets, and RecoveriesPart 6: Strategy, Behavior, Accounts, and Taxes
- Why Timing the Market Is HardPart 6: Strategy, Behavior, Accounts, and Taxes
- The 2008 Financial Crisis coming soonLessons from Market History (depth track)
Notes and sources
- National Bureau of Economic Research. US Business Cycle Expansions and Contractions. Checked 2026-10-14. Back to text
- National Bureau of Economic Research. Business Cycle Dating. Checked 2026-10-06. Back to text
- National Bureau of Economic Research. Business Cycle Dating Committee Announcements. Checked 2026-10-14. Back to text
- Aswath Damodaran, NYU Stern School of Business. Historical Returns on Stocks, Bonds and Bills, with annual data through 2025 (updated January 2026). Checked 2026-10-12.