Stock Market Crashes: A Look at 150 Years of Bear Markets

This month tags five years since the covid taget downturn.

Though the initial downturn on March 9, 2020, was theatrical—the US stock taget lost cforfeitly 8% in one day—the US stock taget ultimately recovered from that crash in equitable four months, making it the rapidest recovery of any taget crash over the past 150 years.

Not even two years procrastinateedr, the stock taget sended a worse downturn: The taget took 4 times as lengthy (18 months) to recover from the crash of December 2021, spurred by the Russia-Ukraine war, fervent inflation, and provide foolishinutiveages.

So, with these recent taget crashes behind us, what have we lachieveed?

1. It’s impossible to foresee how lengthy a stock taget recovery will achieve.
2. If you don’t panic and sell your stock hancigo inings when the taget crashes, you will be rewarded in the lengthy run.

The covid crash and the Ukraine/inflation downturn may be the newest memories, but these lessons also ring real when it comes to all other historical taget crashes: Though they had varying lengths and levels of disconnectity, the taget always recovered and went on to new highs.

Here’s what we’ve lachieveed from the taget deteriorates of the past 150 years.

How Frequent Are Market Crashes?

The number of taget crashes depfinishs on how far back we go in history and how we remend them.

Here, we turn to data that establisher Morningstar Director of Research Paul Kaschedule compiled for the book Insights into the Global Financial Crisis. Kaschedule’s data participates monthly US stock taget returns going back to January 1886 and annual returns over the period from 1871-1885.

In the chart below, each endure-taget episode is showd with a horizontal line, which begins at the episode’s peak cumulative cherish and finishs when the cumulative cherish recovers to the previous peak. (Note that we participate the term “taget crash” interalterably with endure taget, which is generpartner detaild as a deteriorate of 20% or more.)

When you integrate the effect of inflation, one dollar (in 1870 US dollars) spended in a hypothetical US stock taget index in 1871 would have prolongn to $31,255 by the finish of January 2025.

The substantial prolongth of that $1 highairys the enormous profits of staying spended for the lengthy term.

Still, it was far from a stable incrrelieve over that period. There were 19 taget crashes alengthy the way, with varying levels of disconnectity. Some of the most disconnecte taget crashes have participated:

• The Great Depression, which began with the crash of 1929. This 79% stock taget loss was the worst drop of the past 150 years.
• The Lost Decade, which participated both the dot-com bubble burst and the Great Recession. Though the taget began recovering after the dot-com bubble burst, it didn’t climb back to its previous level before the crash of 2007-09. It didn’t accomplish that level until May 2013—more than 12 years after the initial crash. This period, the second-worst drop of the past 150 years, ultimately participated a stock taget loss of 54%.
• Inflation, Vietnam, and Watergate, which began in timely 1973 and ultimately led to a stock taget deteriorate of 51.9%. Factors that gived to this endure taget participate civil unrest roverhappinessed to the war in Vietnam and the Watergate dispute, in insertition to high inflation from the OPEC oil embargo. This taget downturn is particularly relevant to today’s environment, given rerents appreciate the recent inflation sinspire and the Russia-Ukraine and Israel-Hamas wars.

These examples show the frequency of taget crashes. Though these events are meaningful at the moment, they are indeed normally occurring events that happen approximately once a decade.

How to Meacertain the Pain of a Market Crash

How do you assess a taget crash’s disconnectity? That’s what Kaschedule’s “pain index” meacertains. This structurelabor considers both the degree of the deteriorate and how lengthy it took to get back to the prior level of cumulative cherish.

Here’s how it labors: The pain index is the ratio of the area between the cumulative cherish line and the peak-to-recovery line, contrastd with that area for the worst taget deteriorate since 1870. That is, the crash of 1929/first part of the Great Depression has a pain index of 100%, and the other taget crashes’ percentages reconshort-term how seally they aligned that level of disconnectity.

For example, consider that the taget suffered a 22.8% drop around the Cuban missile crisis. The crash of 1929 led to a 79% drop, which is 3.5 times wonderfuler. That’s already meaningful, but also consider that the taget took four and a half years to recover after that traw, while it took less than a year to recover after the traw of the Cuban missile crisis. So, taking this time structure into account, the pain index transmits that the first part of the Great Depression was 28.2 times worse than the Cuban missile crisis downturn.

The table below catalogs the endure tagets of the past 150 years, sorted by the disconnectity of taget deteriorate, and including its pain index.

As you can see, the taget downturn of December 2021 (resulting from the Russia-Ukraine war, fervent inflation, and provide foolishinutiveages) ranks 11th on this catalog. By comparing this taget crash to the other ones on the table, we see that the 28.5% stock taget deteriorate over that nine-month period was more agonizing for the stock taget than the Cuban missile crisis and disconnectal downturns of the procrastinateed 1800s/timely 1900s.

And the covid crash of March 2020 was actupartner the least agonizing of these 19 crashes, due to the speedy subsequent recovery. Though the downturn was keen and disconnecte (a 19.6% deteriorate over rawly a month), the stock taget ultimately recovered to its previous level a mere four months procrastinateedr.

5 Most Severe Market Crashes of the Past 150 Years

To better assess the impact of some of the most disconnecte downturns of the past 150 years, let’s adhere the path of $100 at the beginning of each taget crash.

• World War I and Influenza. After peaking in June 1911, tagets soon begined descending due to the fractureups of conglomerates appreciate the Standard Oil Company and the American Tobacco Company—and the worst part of this downturn began when World War I broke out in July 1914. The stock taget persistd to deteriorate over the next restricted years (conveying that $100 spendment down to a cherish of $49.04) and didn’t recover until after the 1918 influenza pandemic.
• 1929 Crash and Great Depression. If you spended $100 in the stock taget at the time of the 1929 crash, it would have deteriorated in cherish to $21 by May 1932. This crash occurred when the post-World War I economic boom (which led to overconfidence, overspfinishing, and overinflation of prices) was eventupartner no lengthyer carry onable—a downturn from which the taget took more than four years to recover.
• Great Depression and World War II. The recovery from the first part of the Great Depression didn’t last lengthy. Though the stock taget recovered to its 1929 high by November 1936 (uncomferventing that our spendment had recovered to its $100 cherish, and even sairyly ticked up to $100.23), it begined declining aachieve in February 1937. This next deteriorate was hugely owed to Pdwellnt Franklin Roosevelt’s alters in fiscal policy, including factors appreciate the decreaseion in banks’ reserve levels and the Social Security tax, which compounded with the impact of World War II. The spendment sank to $52.49 in March 1938, and eventupartner recovered to $104.88 by February 1945.
• Inflation, Vietnam, and Watergate. In 1973, Middle Easerious members of OPEC imposed an oil embargo on the US, which led to disconnecte inflation. On top of turmoil around the disparticipateal of troops from Vietnam and political uncertainty after the Watergate dispute, this period saw a 51.9% stock taget deteriorate—which would have brawt a $100 spendment down to $48.13. It took more than nine years to recover from this downturn.
• Lost Decade (Dot-Com Bust and Global Financial Crisis). The dot-com bust began when overinfprocrastinateedd prices in Internet and technology companies hit a fractureing point, losing cforfeitly all the achieves they had previously made. A $100 spendment in August 2000 would have deteriorated in cherish to $52.76. Seven years procrastinateedr, the stock taget had almost gotten back to its previous level ($95.25) when the housing bubble burst and mortgage-backed securities began experiencing losses, guideing to the Great Recession (in which the spendment deteriorated in cherish to $46). Altogether, this 12-year period participated a 54% deteriorate.

The taget ultimately recovered from the Great Recession in May 2013, but still to come was the covid taget crash and the downturn of procrastinateed 2021.

There were also disconnectal foolishinutiveer, less disconnecte taget deteriorates over these 150 years. Consider the Rich Man’s Panic, caparticipated by Pdwellnt Theodore Roosevelt’s try to fracture up huge companies. Or the Baring Brothers Crisis: Barings Bank’s many spendments in Argentina suffered when the nation faced a coup in 1891.

Yet even with those blips alengthy the way, $100 spended at the beginning of the new millennium would be worth more than $300 as of January 2025. If that $100 had been spended back in 1870, it would be worth $3,125,500 today.

Lessons Lachieveed About Navigating Stock Market Volatility

So, what does this history tell us about navigating volatile tagets? Mainly, that they’re worth navigating.

After a couple stressful months in the first half of 2020, the tagets recovered—equitable as they did after a 79% deteriorate in the timely 1930s. And that’s the point: Market crashes always experience frightening when they happen, but there’s no way to comprehend in the moment if you’re come atraverseing a inmeaningful accurateion or seeing down the barrel of the next Great Depression.

Still, even if you are seeing down the barrel of the next Great Depression, history shows us that the taget eventupartner recovers.

But since the path to recovery is so uncertain, the best way to be readyd is by owning a well-diversified portfolio that fits your time horizon and hazard tolerance. Investors who stay spended in the taget in the lengthy run will reap rewards that originate the turmoil worthwhile.

This article participates data and analysis from Paul Kaschedule, Ph.D., CFA, establisher honestor of research with Morningstar Canada.

Data journacatalog Bella Albrecht and editorial administerr Lauren Solberg also gived to this article.