COVID-19 and Historical Drops

As of the close on 3/23/2020, the S&P 500 closed at 2237, which was down 34% from its highs about a month and a half ago, making this the fastest drop in history. The closest parallel that I could find as a reference is the crash of 1987 where the market dropped about 34% over 4 months. It then took 21 months for it to make a new high. This year’s drop will forever be compared to that because of its speed and depth. Buying after that crash turned out to be one of the best buying opportunities in history. 

During the financial crisis of 2008, the market dropped 59% in 17 months. It then took 50 months for it to make a new high. We are currently in a health crisis, not a financial crisis. The Federal Reserve is and has been taking measures to make sure it doesn’t become one. Congress legislated what is essentially a $6 trillion stimulus plan to get us to the other side of the virus.

If you weren’t in the market for the 10 best days in the last decade, your return would have been halved. The best days usually follow the worst. As painful as it is to stay in during a decline, if history is any guide, staying the course is most likely the best stance.