What we can learn from the 17 stock market crashes since 1870

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Investors may find it worthwhile to consider how markets recovered from history’s other crashes. YahooFinance

The S&P 500 plunged 20% from its February 19 peak into a bear market in a record 16 trading days. Another seven sessions later, the S&P 500 was down more than 30% from that February closing high.

A dollar to $15,303A long-time horizon tends to be helpful. In Kaplan’s recent analysis of real U.S. stock returns, “$1 invested in a hypothetical U.S. stock market index in 1871 would have grown to $15,303 by the end of March 2020,” he said. Based on his data, stocks took an average of about 25 months to drop to a trough from a recent high. From the market bottom, stocks then averaged nearly 30 months to return back to at least the previous peak, designating a recovery.

Story continuesKaplan also developed a “pain index” to track the overall severity of each of the previous bear markets by accounting for both their initial real declines from peak to trough, as well as the time it took for the stock market to return back to the prior peak level. Each decline was benchmarked to the Great Depression – the worst stock market decline of the past 150 years based on both steepness of decline and time to recovery – with a pain score of 100.

Both the contours – whether a straightforward V, slower U or wobbly W-shaped – and time to the market recovery coming out of the current COVID-19 crisis remain up for debate.

 

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