Last week’s report on the country’s Gross Domestic Product for the second quarter confirmed that the economy shrank in the first half of the year, a fact that some investors and economists had already suspected. Broad-based inflation, rising energy prices, higher interest rates, and other factors were a drag on growth for the second consecutive quarter.

And while the economy is still 1.6% larger compared to a year ago, even after adjusting for inflation, many are wondering whether we are now in a recession. With clear signs that growth has slowed, how should long-term investors react?

In many ways, the current investment environment may be one of the most challenging in years due to a variety of mixed signals. While analyzing economic data in the right context is always difficult, many of today’s market and economic factors can be interpreted as being either good and bad, depending on one’s perspective and priorities. For instance, another major event last week was the Fed raising rates by 75 basis points for the second time in as many meetings. While tighter monetary policy is usually a bad sign for the economy, major indices have rallied in response to the Fed combating inflation.

Similarly, slower economic growth and an inverted yield curve would normally be negative for the stock market. However, growth that is only moderately slower, but that helps to ease supply and demand pressures on inflation, can be positive. These data have pulled the 10-year Treasury yield back to around 2.65% from near 3% only a month ago, and many other interest rates, including mortgage rates, have fallen as well. Perhaps more interestingly, the S&P 500 rallied 9.1% in July and has rebounded 12.6% since the middle of June following the Fed meeting that month.

This is another reminder to long-term investors that markets can rebound when it’s least expected. In this context, there are a few ways in which investors can interpret the latest GDP numbers. First, does this mean that we’re in a recession? While some consider two consecutive quarters of negative growth to be a recession, sometimes referred to as a “technical recession,” the official definition from the National Bureau of Economic Research is more nuanced and considers a variety of data beyond GDP.

The economy shrank for the second consecutive quarter