The past month has been brutal for the roughly half of U.S. adults who own stocks. Since the peak on Feb. 19, the S&P 500 has cratered, losing 34% of its value through March 23. That marks only the sixth time in the past 50 years that stocks have fallen by 30% or more, just over once every eight years on average.
And if this market crash feels quick and painful, well, it has been. We have seen stocks fall farther and faster in the past month then at almost any other time in the past half-century, and U.S. stocks have lost almost $10 trillion in market value. I don't think it's a stretch to call this market crazy, and when you see this statistic, it should help put the craziness into context:
Over the past 50 years, it has taken an average of 336 days -- or about 11 months -- for the S&P 500 to fall 30%. It's only taken 30 days for stocks to crash that much this year, or less than 10% as much time as usual. It's been brutal, and brutally fast.
It's happened faster ... once
This crash has been unique in a lot of ways, most notably its speed. But that's been largely the product of the root cause: The rapid outbreak of novel coronavirus around the world, and the spread of COVID-19, has ground much of the world's travel and consumer activity to a standstill.
It has happened so suddenly, and with little end in sight, that investors moved at unprecedented speed to sell out of stocks and even many corporate bonds, in an effort to reduce their exposure to what could be the fastest and biggest slowdown in global economic history. But this actually isn't the fastest 30% drop in market history. In 1987, the S&P 500 fell 31.5% in only 14 days:
Black Monday was the key to how rapid the 1987 decline was. On that single day, Oct. 19, the S&P 500 fell 20.5%, still one of the worst days in stock market history, and likely to remain that way. Since then, major stock markets have implemented "circuit breakers," or rules that automatically halt trading when markets begin to fall that quickly. Over the past few weeks, we have seen those circuit breakers kick in multiple times to keep emotion and momentum from turning to full-on panic-selling.
Following Black Monday, the markets would remain pretty up-and-down for about a month, but over the next year the S&P 500 gained 23%.
Some key numbers to put it into context
1987 and 2020 are by far the two biggest outliers on this list of 30%-plus drops.
Of the six 30%-plus market drops we've seen in the past 50 years, it took more than 530 days for stocks to fall that much in 1968-1970, 1973-1974, and 2000-2001. That works out to almost 18 months, on average, compared to the one month it took to fall that much in 2020.
Even during the Global Financial Crisis, stocks didn't just leap off a cliff. It was almost a full year from the Oct. 9, 2007, pre-crash peak, to the first 30% drop on Oct. 6, 2008. Of course stocks would continue to fall, finally bottoming out in early March 2009, down more than 56%.
Unprecedented times calling for unprecedented response
A couple of points. First, yes, this drop has happened brutally quickly, and for good reason. This is the quickest global health pandemic in the history of humanity. Never before have remote populations been so connected, with international commerce and air travel making the spread of a novel pathogen making this sort of pandemic possible. It's outrun our ability to develop treatments quickly enough to contain the spread.
That leads to the reality that things are likely to get worse, on the health and economic front. Recession is a foregone conclusion at this point; major industries have been all but shut down, including air travel, entertainment, and hospitality, and millions of Americans are expected to be added to the unemployment roles in the weeks ahead. That will mean severely reduced demand for consumer goods of all kinds, even with the government planning massive stimulus efforts.
History tells us something else that's important
But even with those risks and the potential that it will send stocks even lower, history is also an excellent guide in another way: Now is the time people should be looking to buy stocks, not sell them.
That's because even if we see a protracted period where stocks fall even more, eventually we will move past this. Medical professionals will develop treatments and potentially a vaccine, and life will return to normal. And then we will see a period of recovery, and it's the people who took advantage of the crash to buy who will enjoy the next bull market that will follow.
Even if you don't have a big pile of cash ready to invest, there are ways to take advantage, such as increasing your 401(k) contributions or putting a little bit into your brokerage account and buying a low-cost index fund like SPDR S&P 500 ETF Trust (SPY 0.19%), the Vanguard S&P 500 ETF (VOO 0.18%) or the Vanguard Total Stock Market ETF (VTI 0.36%).
Even if the market sends them lower in the weeks and months to come, those investments will look absolutely brilliant a decade from now.