The stock market is amazingly resilient. You might be surprised at how fast the stock market can change … for the better. Let’s look at how the market has recovered remarkably – and quickly – from some notable downturns.
2008-2009. The collapse of the subprime mortgage markets triggered a recession and made 2008 the worst 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. Then the market took off. From March 9, 2009 to the end of 2009, the S&P 500 soared 64.83% while the NASDAQ gained 78.87% and the Dow gained 59.28%.
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 – a 21% rebound in less than three months. 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 – a 10.6% gain in 22 days. 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%.
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. Then the recovery kicked in. During the next two trading days, the Dow gained nearly 300 points – and it closed 1987 at 1,939, gaining back all of the loss and ending up 2% for the year. By January 1990, the DJIA was at 2,800. If you were fortunate enough to invest $1,000 in the S&P 500 index at the close of Black Monday and reinvested your dividends, you would have wound up with about $10,800 20 years later. If you had invested in the Dow stocks a week before Black Monday, you would have lost 30% on your investment in the crash … but if you held on, your investment would have gained 462% over the next 20 years.
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. In early December 1974, the Dow is at 577; in July 1976, it hits 1,011.
So while the markets have been through some rough periods, it is important to note that panicking is not the answer!