Chart of the Week: How Common Are Stock Market Drawdowns?

Chart of the Week: How Common Are Stock Market Drawdowns?

May 16, 2022

While investing in the stock market has been rewarding over time, it often doesn’t feel that way. And it’s no wonder—if we measure from prior highs, the S&P 500 index has spent almost half of the time down 5% or more from its peak over the last four-plus decades.

Here are the stats: Since 1980, the S&P 500 index was down 5% or more from its prior high 49% of the time, down 10% or more 35% of the time, and down 20% or more 19% of the time through May 11, 2022.

Despite the extensive number of drawdowns, the market has seen price appreciation of 3,621% over the period—an 8.9% annualized rate.

To put it in a dollar-value perspective, even though nearly a fifth of the time was spent in a bear market (a decline of 20% or more), a $1,000 investment in the S&P 500 made in 1980 would’ve been worth $37,209 through Wednesday night (and that’s not counting dividends).

I would not be surprised if someone remade this chart 40 years from now and it showed similar results.

Stock Market Drawdowns Are Common
Note: Chart shows daily index level for the S&P 500 from 1/2/1980 through 5/11/2022 along with periods of drawdowns exceeding 5%, 10% and 20%. Sources: Morningstar, Adviser Investments.

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