Angie · learn
Recession
A meaningful, broad decline in economic activity lasting more than a few months. Dated formally after the fact, which is of limited use while you are in one.
Updated 2026-09-05
A recession is a significant, broad decline in economic activity lasting more than a few months. The commonly quoted two-consecutive-quarters rule is a heuristic, not the official definition, which is a judgement made after the fact.
For a valuation the effect is a squeeze from both directions: cash flows fall, and risk premia rise so the discount rate applied to them rises too. That is why equity markets fall much further than earnings do in a downturn.
See also
- Business cycle — The repeating pattern of expansion, peak, contraction and trough. It is why a cyclical company's best year is a poor guide to its future.
- GDP — Everything produced inside a country's borders. Its long-run growth rate is the ceiling on what any company can sustainably grow at forever.
- Monetary policy — The central bank setting the price of money to manage inflation and employment. Its main transmission into markets is the discount rate.
Educational content, not investment advice. Angie explains how a valuation is built so you can judge it yourself. What you do with that is your call.
