Historical perspective

The sharp ups and downs we see in today’s markets can seem unbearable at times. There are days that the news we hear makes us wonder if the markets will ever recover. But history shows that the markets have been tested and have withstood the test of time.

If we look at past downturns, we see that often times investing opportunities followed the most uncertain market conditions.

Take a look at three examples:

S&P 500 since 1970 The market’s good and bad years Bulls and Bears

Value of the S&P 500 from 1/1/1970 to 12/31/2009

The illustration shows that the S&P 500 Index continues an upward trend, despite downward “blips”. Staying focused on short-term trends can be discouraging, but the big picture shows that the market continued to grow despite downturns.

A look at the market’s good and bad years

Did you know that since 1926, the stock market, as measured by the S&P 500 Index:
  • Has had a 72% chance of being up in any given year (see pie chart)
  • The historical odds are 8-to-1 the market will be down by 10 percent or more in any one year
  • The historical odds are 2-to-1 the market will be up by 10 percent or more in any one year
The Stock Market: The Good Years
More Than 32% Gain 21-32% Gain 10-21% Gain 0-10% Gain
1954 53.99% 1935 31.71% 1983 22.80% 1968 11.62%
1933 52.62% 1950 31.56% 1963 22.51% 1926 11.06%
1935 47.67% 1989 31.49% 1982 21.41% 2004 10.87%
1928 43.61% 1938 31.12% 1999 21.04% 1993 9.99%
1958 43.36% 1991 30.55% 1942 20.34% 1992 7.67%
1927 37.49% 2003 28.70% 1944 19.75% 1978 6.56%
1995 37.43% 1998 28.58% 1972 18.98% 1956 6.56%
1975 37.20% 1961 26.89% 1949 18.79% 1984 6.27%
1945 36.44% 1955 26.40% 1986 18.47% 1947 5.71%
1936 33.92% 1943 25.90% 1979 18.44% 1948 5.50%
1997 33.36% 1951 24.02% 1952 18.37% 2007 5.49%
1980 32.42% 1967 23.98% 1988 16.81% 1987 5.23%
1985 32.16% 1976 23.84% 1964 16.48% 2005 4.91%
2009 23.45% 2006 15.79% 1970 4.01%
1996 23.07% 1971 14.31% 1994 1.31%
1965 12.45% 1960 0.47%
1959 11.96%
The Stock Market: The Bad Years
Up to 5% Loss 5-10% Loss 10-25% Loss More Than 25% Loss
1939 -0.41% 1977 -7.18% 1966 -10.06% 1974 -26.47%
1953 -0.99% 1946 -8.07% 1957 -10.78% 1937 -35.03%
1934 -1.44% 1932 -8.19% 1941 -11.59% 2008 -38.49%
1990 -4.91% 1929 -8.42% 2001 -13.04% 1931 -43.34%
1969 -8.50% 1973 -14.66%
1962 -8.73% 2002 -22.10%
2000 -9.11% 1930 -24.90%
1981 -9.73%  
1940 -9.78%

Source: Standard & Poor's

Bull Markets Up, Bear Markets Down

Bear markets can test even the most steadfast long-term investors, but they historically have lasted only a short time compared to bull markets. Bull markets have historically lasted five times longer than bear markets.

Look at the chart below and consider that:

  • Since 1950, the 15 bear markets have each lasted, on average, just 11 months.
  • The 16 bull markets over that same period have each lasted an average of 34 months.
  • The average bull market gained 104% while the average bear market lost 23%.
  • Bear markets can provide investing opportunities for those ready to take them.

Source: Morningstar Direct. Results are based on an initial $1,000 investment in the unmanaged S&P 500 Index 1/1/1950 - 12/31/2009. Results assume reinvestment of dividends. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Investments can not be made directly in an index. Past performance is not a guarantee of future results.