The stock market is amazingly resilient. The sky is not falling, despite what the pessimists would have you believe. Yes, the Dow Jones Industrial Average entered bear market territory in early July. Yes, oil prices are incredibly high. Yes, June was a really lousy month for stocks. We canâ€™t change all this. But you might be surprised at how fast the stock market can change â€¦ for the better. Looking back, the market has recovered remarkably â€“ and quickly â€“ from some notable downturns.
2001-2002. After the four-day closure of the stock market following 9/11, the Dow fell 685 points (the biggest single-day drop ever) to 8920 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 â€“ 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 â€“ 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. (That would be akin to a 2,300-point one-day drop today.) The S&P 500 lost 20.4%.4 By comparison, the initial â€œBlack Mondayâ€, the stock market crash of 1929, represented a 12.8% market loss.
Then the recovery kicked in. During the next two trading days, the Dow gained nearly 300 points â€“ 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 â€¦ 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.
I hope these examples give you some encouragement and confidence when it comes to the market right now. The Dow, S&P and NASDAQ have been through some rough periods, but the important thing is to look at how they have climbed across the decades.
On August 12, 1982, the Dow was at 777. On January 14, 2000, it was at 11,722.98. Thatâ€™s a 1,500% gain in 17Â½ years. This is why people stay in the market through the downturns. This is what the market is capable of achieving. There are periodic descents, but history is definitely on an investorâ€™s side.