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S&P500 +10% DrawDowns since 1870

Updated: Mar 13

Updated on Feb 13, 2024

This blog was posted originally on May 10th, 2020. At the time we were in a drawdown, that peaked at -35.95% and took 5 months to recover from the bottom. In August 2020 we recovered all the drawdown then immediately suffered a -10.55% drawdown that lasted till November 2020.

S&P500 Index 2020 Covid DrawDown
S&P500 Index 2020 Covid DrawDown

Since then we suffered through another big drawdown. In January 4, 2022, we peaked with a new all time high at (4,820.2) followed by a -27.54% drawdown which lasted for 9 months, and then we had to wait for 15 more months to recover. We managed to get to a new high in January of 2024. The last drawdown peaked on October 13th ,2022,

S&P500 Index most recent 2022 drawdowns
S&P500 Index most recent 2022 drawdown

If you continue reading the blog below, you will read that I highly advise against parking your money in any index because of big drawdowns and the probability of staying in one for decades, just look at the Nekkei Index or the S&P500 between 2000-2014. Instead you can easily trade a simple momentum system on the index or other global assets that trade monthly or yearly and beat the index returns with much lower drawdowns.

Many videos on my YouTube channel show simple systems that beat the S&P500 buy and hold.

I also have multiple Momentum Portfolios (also called Factor Investing or Tactical Asset Allocation) on my VIP+ community. They all use a flavor of momentum on different assets, they are all Long only and trade liquid ETFs only. You can check them out over here.


Original Blog, posted on May 10, 2020

Few investors could have predicted that a viral outbreak would end the longest running bull market in US history. The US stock market fell from it's peak in Feb 19, 2020 to current March low more than 33%. We are not yet out of this crash. Any drawdown more than 10% is considered a crash, and any drawdown more than 20% is considered a bear market which is another way of saying that this is not a small correction.

Such volatility in markets cause investors to panic, so it's helpful to keep an eye on the long term performance of the index.

below is a chart that shows drawdowns of more than 20% and how many months it took to reach the bottom and how many months to recover. You will notice that 1909 bar is out of the chart as it took 140 months to reach the bottom. Also 1929 crash took 265 months to recover from bottom so it doesn't show in the chart below.

S&P 500 DrawDowns > 20% since 1900
S&P 500 DrawDowns > 20% since 1900

Markets typically return to previous peak. In fact if you think of it we are always in a draw down until a new high is reached. Sometimes the drawdown is short and sometimes it's long. In recent history, central banks are taking more active roles and through many mechanisms they are interfering with markets and fluffing all assets in order to prevent long bear markets.

The chart below give an average stats of all draw downs since 1900.

S&P500 Average DrawDown Stats since 1900
S&P500 Average DrawDown Stats since 1900

We can deduct from the chart above that usually the bigger the drawdown the longer it takes to recover from it.

S&P500 Average DrawDown Stats since 1900 in numbers
S&P500 Average DrawDown Stats since 1900 in numbers

The current drawdown hasn't ended yet. We don't know as we did not fully recover from it. It was the fastest drawdown in history, also the federal reserve reaction was unseen before. as they are printing more money than ever before and using it to buy assets.

The norm has been that we always get to new highs in the US, but sometimes it takes a long time to get back and if you buy and hold then your money will be doing nothing even if you hold all the way through. Keep in mind that inside bear markets are rally's and more drawdown. The excel sheet below shows the many bull/crash markets inside bear markets.

There is another point to take into consideration, some markets don't recover at all. Take Japan for example, as you see in the chart below, Japan stock market index is still underwater since 1990.

Nikkei 225 price chart

The point that I want to drive, is there is no perfect index to park your money and forget about it. You need a system to make your money work hard for your retirement nest egg.

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