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Review of Prior Market Downturns

Author: Kurt Spieler, Chief Investment Officer

Stock markets have declined sharply, with the S&P 500 experiencing over a 30% decline in the course of 23 trading days. Fixed income securities have also seen price weakness, with spreads widening in corporate and municipal bonds. We reviewed the current stock market weakness in the context of prior bear markets. Since World War II, this represents the 15th stock market decline.

As illustrated, the current decline of -34% for the S&P 500 is above the average downturn for all bear markets (-30%) and close to the average bear market in recessions (-37%). We believe financial markets are starting to price in a global recession. Although none of us can predict the market bottom, there have been only three market periods in which losses exceeded -40% (1974, 2002 & 2009). In other words, investors have likely experienced most of the losses.

Second, we believe it’s important to remind investors that the stock market has always recovered. As indicated, the average length of recovery from the downturns is 20 months, and the average length of recovery in recessions is 30 months. Even in the same worst three market periods, the market recovered to make new highs in 49-69 months.

In summary, we recommend clients stay invested in an appropriate stock allocation as every stock market decline has been followed by a rebound and market timing is extremely difficult. The stock market historically rewards investors who are willing to experience short-term pain to reap the long-term gains. During this uncertain time, please stay safe and healthy – being prosperous will happen again!

Kurt Spieler, Chief Investment Officer

About the Author
Kurt Spieler is Chief Investment Officer for First National Bank Wealth Management, where he is responsible for developing and implementing investment strategies. This includes leading the asset allocation, equity, fixed income and manager research committees. In addition, Kurt manages investment portfolios for high net worth and institutional clients.

Past performance is not indicative of future results.