Dan Passarelli, CEO - Market Taker Mentoring

There's been a lot of talk about possibly going into a recession. A question that was posed earlier this week is what does that really actually even mean? What is a recession?

A recession used to be defined as a two quarter decline in GDP, and this morning we had GDP come out. 
⇐click the image to view the video) As you can see here from this graphic, we had a small decline in GDP this quarter, as well as a small decline in GDP last quarter. GDP, of course, meaning gross domestic product. So by that definition, that means we're in a recession. But here's the thing.

They changed it on us. The National Bureau of Economic Research here says the 'traditional definition' of recession is "a significant decline in economic activity that is spread across the economy that lasts more than a few months". So what exactly does that mean and how exactly do you measure that? Well, that brings us to a good discussion point.

First of all, different people are going to disagree on this. We live in a time when people disagree on the color of the sky. People are definitely going to disagree on whether or not we're in a recession if it's that general of a definition, right? So, we don't mind sticking with what WE would call the traditional definition. They call this new definition, 'the traditional definition'. We prefer using what we call the traditional definition of two quarters of declining GDP, of negative GDP.

But that brings us to the point: what does that change? It is just a definition. It is really just a word. Wasn't it FDR who said: "the only thing we have to fear is fear itself", right? And when people talk about us being in a recession, that can be a little bit emotionally charging and can maybe even exacerbate it.

There's no real need to get super hung up on it. Continue watching earnings. Continue watching just what the market does and how well companies are doing and how well their stock prices are doing or theoretically related, but not always 100% related, of course. Keep watching those things and not get super hung up on what the precise definition is; and whether this word represents what the economy is doing right now or not; and move on and continue trading and finding great opportunities out there.

As they say, more millionaires are made in declining markets than bull markets so: go get 'em! I hope this helps.