Markets
How the S&P 500 Performed During Major Market Crashes
How the S&P 500 Performed During Major Market Crashes
Like spectacular market peaks, market crashes have been a persistent feature of the S&P 500 throughout time.
Still, the forces underpinning each rise and fall are often less clear. Take the COVID-19 crash, for example. Despite lagging economic growth and historic unemployment levels, the S&P 500 bounced back 47% in just five months, in a stunning reversal.
Drawing data from Macrotrends, the above infographic compares six historic market crashes—examining the length of their recoveries and the contextual factors influencing their durations.
The Big Picture
How does the current COVID-19 crash of 2020 stack up against previous market crashes?
Title | Start — End Date | Duration (Trading Days) | % Drop |
---|---|---|---|
Black Tuesday / Great Crash* | Sep 16, 1929 — Sept 22, 1954 | 300 months (7,256 days) | -86% |
Nixon Shock / OPEC Oil Embargo | Jan 11, 1973 — Jul 17, 1980 | 90 months (1,899 days) | -48% |
Black Monday** | Oct 13, 1987 — May 15, 1989 | 19 months (402 days) | -29% |
Dot Com Bubble | Mar 24, 2000 — May 30, 2007 | 86 months (1,808 days) | -49% |
Global Financial Crisis | Oct 9, 2007 — Mar 28, 2013 | 65 months (1,379 days) | -57% |
COVID-19 Crash*** | Feb 19, 2020 — Ongoing | 5 months+ (117+ days) | -34% |
Price returns, based on nominal prices
*Black Tuesday occurred about a month after the market peak on Oct 29, 1929
**The market hit a peak on Oct 13th, prior to Black Monday on Oct 19,1987
***As of market close Aug 4, 2020
By far, the longest recovery of this list followed the devastation of Black Tuesday, while the shortest was Black Monday of 1987—where it took 19 months for the market to fully recover.
Let’s take a closer look at each market crash to navigate the economic climate at the time.
After the Fall
What were some factors that can help provide context into the crash?
1929: Black Tuesday / Great Crash
Following Black Tuesday in 1929, the U.S. stock market took 7,256 days—equal to about 25 years—to fully recover from peak to peak. In response to the market crisis, a coalition of banks bought blocks of shares, but with negligible effects. In turn, investors fled the market.
Meanwhile, the Federal Reserve Board rose the discount lending rate to 6%. As a result, borrowing costs climbed for consumers, businesses, and the central banks themselves. The tightening of rates led to unintended consequences, with the economy capitulating into the Great Depression. Of course, factors that contributed to its prolonged recovery have been debated, but these are just a few of the actions that had implications at the time.
1973: Nixon Shock / OPEC Oil Embargo
The Nixon Shock corresponded with a series of economic measures in response to high inflation. Soaring inflation devastated stocks, consuming real returns on capital. Around the same time, the oil embargo also occurred, with OPEC member countries halting oil exports to the U.S. and its allies, causing a severe spike in oil prices. It took seven years for the S&P 500 to return to its previous peak.
1987: Black Monday
While the exact cause of the 1987 crash has been debated, key factors include both the advent of computerized trading systems and overvalued markets.
To curtail the impact of the crash, former Federal Reserve chairman Alan Greenspan aggressively slashed interest rates, repeatedly promising to take great lengths to stabilize the market. The S&P took under two years to recover.
2000: Dot Com Bubble
To curb the stratospheric rise of U.S. tech stocks, the Federal Reserve raised interest rates five times in eight months, sending the markets into a tailspin. Virtually $5 trillion in market value evaporated.
However, a number of well-known companies survived, including eBay and Amazon. At the time, Amazon’s stock price cratered from $107 to $11 while eBay lost 75% of its market value. Meanwhile, a number of Dot Com flops included Pets.com, WorldCom, and FreeInternet.com.
2007: Global Financial Crisis
Relaxed credit policies, the proliferation of subprime mortgages, credit default swaps, and commercial mortgage-backed securities were all factors behind the market turmoil of 2007. As banks carved out risky loans packaged in opaque tranches of debt, risk in the market accelerated.
Similar to 1987, the Federal Reserve initiated a number of rescue actions. Interest rates were brought down to historical levels and $498 billion in bailouts were injected into the financial system. Crisis-related bailouts extended to Fannie Mae and Freddie Mac, the Troubled Asset Relief Program (TARP), the Federal Housing Administration, and others.
2020: COVID-19 Crash
In 2020, historic fiscal stimulus measures along with trillions in Fed financing have factored heavily in its swift reversal. The result has been one of the steepest rallies in S&P 500 history.
At the same time, the economy is mirroring Great Depression-level unemployment numbers, reaching 14.7% in April 2020. In short, this starkly exposes the sharp disconnect between the markets and broader economy.
Bearing Witness
History offers many lessons, and in this case, a view into the shape of a post-coronavirus market recovery.
Although the stock market is likely rallying off Fed liquidity, investor optimism, and the promise of potential vaccines, it’s interesting to note that the trajectory of this crash in some ways resembles the initial rebound shown during the Great Depression—which means we may not be out of the woods quite yet.
As the S&P 500 edges 2% shy of its February peak, could the market post a hastened recovery—or is a protracted downturn in the cards?
This graphic has been inspired by this Reddit post.
Markets
The European Stock Market: Attractive Valuations Offer Opportunities
On average, the European stock market has valuations that are nearly 50% lower than U.S. valuations. But how can you access the market?
European Stock Market: Attractive Valuations Offer Opportunities
Europe is known for some established brands, from L’Oréal to Louis Vuitton. However, the European stock market offers additional opportunities that may be lesser known.
The above infographic, sponsored by STOXX, outlines why investors may want to consider European stocks.
Attractive Valuations
Compared to most North American and Asian markets, European stocks offer lower or comparable valuations.
Index | Price-to-Earnings Ratio | Price-to-Book Ratio |
---|---|---|
EURO STOXX 50 | 14.9 | 2.2 |
STOXX Europe 600 | 14.4 | 2 |
U.S. | 25.9 | 4.7 |
Canada | 16.1 | 1.8 |
Japan | 15.4 | 1.6 |
Asia Pacific ex. China | 17.1 | 1.8 |
Data as of February 29, 2024. See graphic for full index names. Ratios based on trailing 12 month financials. The price to earnings ratio excludes companies with negative earnings.
On average, European valuations are nearly 50% lower than U.S. valuations, potentially offering an affordable entry point for investors.
Research also shows that lower price ratios have historically led to higher long-term returns.
Market Movements Not Closely Connected
Over the last decade, the European stock market had low-to-moderate correlation with North American and Asian equities.
The below chart shows correlations from February 2014 to February 2024. A value closer to zero indicates low correlation, while a value of one would indicate that two regions are moving in perfect unison.
EURO STOXX 50 | STOXX EUROPE 600 | U.S. | Canada | Japan | Asia Pacific ex. China |
|
---|---|---|---|---|---|---|
EURO STOXX 50 | 1.00 | 0.97 | 0.55 | 0.67 | 0.24 | 0.43 |
STOXX EUROPE 600 | 1.00 | 0.56 | 0.71 | 0.28 | 0.48 | |
U.S. | 1.00 | 0.73 | 0.12 | 0.25 | ||
Canada | 1.00 | 0.22 | 0.40 | |||
Japan | 1.00 | 0.88 | ||||
Asia Pacific ex. China | 1.00 |
Data is based on daily USD returns.
European equities had relatively independent market movements from North American and Asian markets. One contributing factor could be the differing sector weights in each market. For instance, technology makes up a quarter of the U.S. market, but health care and industrials dominate the broader European market.
Ultimately, European equities can enhance portfolio diversification and have the potential to mitigate risk for investors.
Tracking the Market
For investors interested in European equities, STOXX offers a variety of flagship indices:
Index | Description | Market Cap |
---|---|---|
STOXX Europe 600 | Pan-regional, broad market | €10.5T |
STOXX Developed Europe | Pan-regional, broad-market | €9.9T |
STOXX Europe 600 ESG-X | Pan-regional, broad market, sustainability focus | €9.7T |
STOXX Europe 50 | Pan-regional, blue-chip | €5.1T |
EURO STOXX 50 | Eurozone, blue-chip | €3.5T |
Data is as of February 29, 2024. Market cap is free float, which represents the shares that are readily available for public trading on stock exchanges.
The EURO STOXX 50 tracks the Eurozone’s biggest and most traded companies. It also underlies one of the world’s largest ranges of ETFs and mutual funds. As of November 2023, there were €27.3 billion in ETFs and €23.5B in mutual fund assets under management tracking the index.
“For the past 25 years, the EURO STOXX 50 has served as an accurate, reliable and tradable representation of the Eurozone equity market.”
— Axel Lomholt, General Manager at STOXX
Partnering with STOXX to Track the European Stock Market
Are you interested in European equities? STOXX can be a valuable partner:
- Comprehensive, liquid and investable ecosystem
- European heritage, global reach
- Highly sophisticated customization capabilities
- Open architecture approach to using data
- Close partnerships with clients
- Part of ISS STOXX and Deutsche Börse Group
With a full suite of indices, STOXX can help you benchmark against the European stock market.
Learn how STOXX’s European indices offer liquid and effective market access.
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