Try to imagine life today without Alphabet (GOOG -0.96%) (GOOGL -1.10%), Amazon.com (AMZN 0.91%), and Apple (AAPL 0.30%). There would be no Google Search, no shopping online on Prime Day, and no iPhone. And there would be a lot less money in most investment portfolios.
These three companies make up nearly 15% of the S&P 500 index. Over the past 10 years, the S&P 500 has risen roughly 140%. During that same period, Alphabet stock nearly quintupled. Amazon and Apple stocks delivered close to 9x gains. Without them, the stock market wouldn't have performed nearly as well as it did.
Some economists and financial experts are now warning that a recession could be on the way. If they're right, the overall stock market will likely move in lockstep with Alphabet, Amazon, and Apple. But what should investors expect? Here's how Alphabet, Amazon, and Apple fared in the last big recession.
Not so great
The last U.S. recession was only two years ago. COVID-19 hit the economy hard and fast. All three big tech stocks plunged at least 20%. Both Alphabet and Apple fell more than 30%. However, the stocks also quickly recovered most if not all of their losses.
This COVID-19 recession was the shortest recession in history, lasting only two months. As a result, it deserves an asterisk. Instead, let's look at how Alphabet, Amazon, and Apple fared in the last big recession. And it truly was a significant one, going down in the history books as the Great Recession.
The Great Recession lasted from December 2007 through June 2009. It was caused by the financial crisis that rocked the stock market and the global economy. What happened with Alphabet, Amazon, and Apple? The picture was dismal.
As the chart above shows, all three stocks plummeted close to 60% below their previous highs. Even after the Great Recession officially ended, none of the stocks had fully recovered. Alphabet, then known as Google, was still down more than 40%.
A small sample size
Can we assume that Alphabet, Amazon, and Apple would perform in a similar fashion in the next recession? The answer is an unequivocal "no." Just as the recession of 2020 was an outlier because it was so short, the Great Recession is also an anomaly because it was so severe.
A sample size of one simply isn't enough to go on to make any reasonable predictions about what might happen in the future. But even if we go back further in time, our sample size doesn't get much bigger.
Google (now Alphabet) conducted its initial public offering in 2004. The company has only endured two recessions as a publicly traded entity -- the Great Recession and the short-lived COVID-19 recession.
Amazon also went through the recession of 2001. But its stock had already lost close to 90% of its value even before that recession started because of the dot.com bubble bursting. Apple has only two additional recessions under its belt in addition to those that Amazon experienced, one in the early 1980s and the other in the early 1990s.
We started out trying to answer the question, "What should investors expect from Alphabet, Amazon, and Apple when the next recession comes?" Unfortunately, we can't answer that question using history as a guide.
One key lesson about recessions that we can easily observe is that each is different. As a result, stocks won't necessarily perform in the same way in different recessions.
It's not just that recessions aren't the same. Companies change as well. Apple certainly isn't the same company now as it was during the recessions of 30 and 40 years ago. Amazon Web Services, Amazon's biggest growth driver now, didn't exist during the recession of 2001. Alphabet's Google Cloud was only in its infancy during the Great Recession.
There are also different dynamics at work today for each of these stocks. For example, Alphabet and Amazon have 20-for-1 stock splits on the way. Even if the U.S. economy enters a recession before these stock splits happen, the two stocks could perform better than they otherwise would have if more retail investors buy at the lower share prices.
Probably the most important lesson of all for investors, though, is that all of these stocks bounced back over time after each recession. Even if you bought shares of Google, Amazon, and Apple at the peak before the Great Recession hit, you would have still made a boatload of money -- if you had held onto those shares.
No one knows for sure when the next recession will come. No one knows for sure how severe it might be. But we can know with a high level of certainty that people will continue using Google Search, shopping on Amazon, and upgrading to the next version of the iPhone.
Alphabet's, Amazon's, and Apple's underlying businesses are built for the long term. Investors should therefore think long-term when buying these stocks.