Understanding recessions and their impact on financial markets.

[radex78]

A recession is a period when there is a decline in the wheels of the economy which is characterized by a weakening of the country's domestic product (GDP) for two consecutive quarters. An economic recession is also characterized by an increase in the unemployment rate, a decrease in retail sales, and a contraction in manufacturing income for an extended period.

Quoting from the FXOpen blog, a recession is not just a number, but it reflects a decline in economic activity and consumer confidence.

The recession itself was triggered by various factors, such as sudden economic shocks, financial crises, or bursting asset bubbles.

The impact of a recession in the economic sector can be unemployment, reduced consumer spending, and a stagnant economy.

Meanwhile, the impact of the recession on the financial market, in general, causes market uncertainty, investors start looking for assets that are considered safe so there is a shift in asset allocation, and volatility increases.

In the stock market, prices of companies affected by a recession may fall, this varies across sectors. Some industries may be highly impacted such as luxury goods, but utility goods may have a lower impact.

In the forex market, it can cause currency fluctuations and many people choose currencies that are considered safe havens such as USD or CHF to minimize the impact.

In commodity markets, a recession can affect oil prices because decreased economic activity can reduce oil demand. Meanwhile gold may be more shiny because it is considered a haven asset.

Some stocks can perform well during a recession, you can find out more on the FXOpen blog about stocks that perform well, and stocks hold  during a recession.