US Stock Returns After 10%+ Declines
George Maroudas put out a super chart on how US stocks perform after every 10% or more decline. Over the last 15 years, there have been six instances of market declines exceeding 10%, and we are currently in the seventh.
Historical Market Declines and Recoveries
Since 2009, following the Global Financial Crisis (GFC), US markets saw a 56% decline, the deepest in this period. Other significant drops include 33.9% during COVID and 25% in December 2022. Despite these setbacks, markets have historically bounced back strongly.
Average Recovery After Major Declines
After each major decline, the average one-year return has been 40%. Over a three-year period, the absolute average gain stands at 76%, and within five years, it reaches 120%. This data reinforces the idea that periods of sharp declines are often followed by strong rebounds.
Parallels with Indian Markets
Similar patterns can be seen in Indian markets, where prolonged downturns are rare, and the majority of time is spent in an uptrend. Investors should take confidence from past trends, recognizing that deep corrections create opportunities for strong future returns.
Market Cyclicality is Inevitable
These numbers highlight the cyclical nature of markets, where bearish phases are followed by significant recoveries. Understanding and accepting this cyclicality is essential for long-term investing success.
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