Here's What 60 Years of History Tells Us About Stock Market Crashes
Key Points
CNN's Fear & Greed Index shows investors are currently fearful.
Nine stock market crashes have occurred since the start of 1966.
However, the S&P 500 has bounced back from every market crash.
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According to CNN's Fear & Greed Index, which measures what emotions are driving the market, fear is taking over. At the time of writing, the index is at 35 (out of 100, which is extreme greed). With investor sentiment dipping, the idea of a correction or crash naturally becomes more of a topic of discussion.
We can't predict how the market will perform in the near term, but even if (or when, rather) a crash does happen, 60 years of stock market history should provide a silver lining.
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A history of stock market crashes
A stock market crash happens when a major index falls by at least 20% from a recent peak. In the past 60 years, there have been nine official market crashes, based on the S&P 500 (SNPINDEX: ^GSPC):
| Market Crash | Peak | Trough | S&P 500 Decline |
|---|---|---|---|
| Inflation & rate hike bear market | Jan. 3, 2022 | Oct. 12, 2022 | (25.4%) |
| COVID-19 crash | Feb. 19, 2020 | March 23, 2020 | (33.9%) |
| Global financial crisis | Oct. 9, 2007 | March 9, 2009 | (56.8%) |
| Dot-com bust | March 24, 2000 | Oct. 9, 2002 | (49.1%) |
| Black Monday | Aug. 25, 1987 | Dec. 4, 1987 | (33.5%) |
| Volcker tightening | Nov. 28, 1980 | Aug. 12, 1982 | (27.1%) |
| Stagflation & oil crisis | Jan. 11, 1973 | Oct. 3, 1974 | (48.2%) |
| Fed tightening & overvaluation | Nov. 29, 1968 | May 26, 1970 | (36.1%) |
| Credit crunch | Feb. 9, 1966 | Oct. 7, 1966 | (22.2%) |
Data source: Yardeni Research. There was a 19.9% decline from July 16, 1990, to Oct. 11, 1990.
Obviously, it's never ideal when your portfolio is in the red. However, the silver lining is that the market has bounced back from every crash it has ever experienced. Using the S&P 500's 7,706.03 closing level on Sept. 23, here's how much it has grown from each of the above market crashes:
| Market Crash | Growth Since Trough |
|---|---|
| Inflation & rate hike bear market (2022) | +115.4% |
| COVID-19 crash (2020) | +244.4% |
| Global financial crisis (2009) | +1,039% |
| Dot-com bust (2002) | +892.1% |
| Black Monday (1987) | +3,341.4% |
| Volcker tightening (1982) | +7,424% |
| Stagflation & oil crisis (1974) | +12,273.2% |
| Fed tightening & overvaluation (1970) | +11,131.6% |
| Credit crunch (1966) | +10,427.4% |
Data source: YCharts.
Image source: Getty Images.
Don't focus on trying to predict a crash
It's always better to be overprepared than underprepared, but you don't want to find yourself trying to predict when a market crash will happen. This could make you hesitant to invest, and you might miss out on potential gains if the market continues to climb.
Nobody can predict how the market will move in the near term. The best thing you can do is stay consistent and trust that the market will bounce back, even if it crashes. If you still have some time before retirement, one of the worst things you can do is panic sell because you could be doing so at a loss, triggering more taxes, or ending your chances to benefit when the market eventually bounces back.
Past performance doesn't guarantee future performance, but the S&P 500's long-term resilience is one of the surest bets in the stock market.
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Stefon Walters has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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