As we find ourselves in the middle of yet another market downturn I thought it would be a good idea to review the incredibly resilient history of the stock market. You might be surprised at how fast the stock market can change … for the better. Letâs look at how the market has recovered remarkably â and quickly â from some notable downturns.
2008-2009. The collapse of the subprime mortgage markets triggered a recession and made 2008 the poorest year for stocks since 1931. The Dow Jones Industrial Average fell 10% in June 2008 and fell 10% again in October 2008, losing 19.12% for the year. On March 9, 2009, the major U.S. indices closed at 12-year lows with the S&P 500 at 676.53.1,2,3
Then the market took off. Investors who swore off stocks in early 2009 lost out on one of the great rallies. From the March 9 lows to the end of 2009, the S&P 500 soared 64.83% while the NASDAQ gained 78.87% and the Dow gained 59.28%.4
2001-2002. After the four-day closure of the stock market following 9/11, the Dow fell 685 points to 8,920 on September 17. It kept falling, losing 14.26% in a week to close at 8,235 on September 21. But what happened next? A huge gain. The Dow closed 2001 at 10,021 â a 21% rebound in less than three months.5
There were more challenges ahead. On October 9, 2002, the Dow had fallen to 7,286. But on Halloween, the Dow sat at 8,397 â a 10.6% gain in 22 days.5 As for the people who panicked and bailed out of the stock market, they ended up kicking themselves: in 2003, the DJIA gained 25.3%, the S&P 500 26.4%, and the NASDAQ 50%.6
1987. October 19 was Black Monday: in a contagion of selling exacerbated by unchecked computer technology, the Dow lost 22.6% in one day, falling to 1,738, a 508-point loss.7 (That would be akin to a 2,400-point one-day drop today.) The S&P 500 lost 20.4%.8 By comparison, the initial âBlack Mondayâ, the stock market crash of 1929, represented a 12.8% market loss.9
Then the recovery kicked in. During the next two trading days, the Dow gained nearly 300 points â and it closed 1987 at 1,939, gaining back all of the loss and ending up 2% for the year.10 By January 1990, the DJIA was at 2,800.11
1974. With investors fretting over rising inflation and the energy crisis, the Dow loses 30% of its value during the first three quarters of the year. Suddenly, the Dow gains 16% in October.12 In early December 1974, the Dow is at 577; in July 1976, it hits 1,011.5
1982-2000. On August 12, 1982, the Dow was at 777. On January 14, 2000, it was at 11,722.98. Thatâs a 1,500% gain in 17Â˝ years.13
The âtwo steps forward, 1 Â˝ backwardâ environment we find ourselves in has been extremely frustrating, particularly for short-term investors. Long-term investors, however, are in a position to take advantage of the drop in stock prices. Take comfort in the fact that, while there are always periodic descents, history is definitely on a patient investorâs side.
1. cnbc.com,12-31-08 2. allheadlinenews.com, 1-3-09 3. money.cnn.com, 3-9-09 4. cnbc.com, 12-31-09 5. the-privateer.com, 6-30-08 6. upi.com/Business News, 12-31-2003 7. sfgate.com, 10-18-07 8. foreignpolicy.com, 10-2007 9. money.cnn.com, 10-26-0
10. articles.moneycentral.msn.com/Investing/Dispatch/BlackMonday20YearsAfter,10-19-07 11. answers.com/topic/closing-milestones-of-the-dow-jones-industrial-average, 7-3-08 12. money.cnn.com/2008/06/27/markets/bear_market.moneymag, 6-27-08
13. answers.com/topic/closing-milestones-of-the-dow-jones-industrial-average, 7-3-08ww.montoyaregistry.com, www.marketinglibrary.net
Damien helps individuals invest and manage risk. He is a CERTIFIED FINANCIAL PLANNERâ˘ professional and a principal of Walnut Creek Wealth Management. These are the views of Damien Couture, CFPÂŽ and should not be construed as investment advice. Investors cannot invest directly in an index. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Not all recommendations are suitable for all investors. Each investor must consider their own goals, time horizon and risk tolerance. Your comments are welcome. amien can be reached at 925-280-1800 x101 or Damien@WalnutCreekWealth.com.