Profiling S&P 500 Drawdowns Since 1871

Longer is better for analyzing the stock market, which is why Professor Robert Shiller’s data set (with an 1871 starting date) is one of the great free resources on the internet for studying the history of US equities. With that in mind, let’s review how the current drawdown for the S&P 500 compares over the past century and a half.

First, a few housekeeping notes. Shiller’s data is monthly. In addition, the official S&P 500 Index was launched in 1957 and so the earlier numbers are results compiled from several sources. For convenience, we’ll refer to the entire history as the S&P 500.

The first thing to note is that calculating drawdown through a monthly lens offers a somewhat different view vs. daily data, which reviewed recently for the S&P 500, using a 1950 start date via Yahoo Finance numbers. Today’s update has a much longer history, but with less granularity. Note, too that the current monthly data for May 2020 runs through May 11.

According to Shiller’s data, the maximum drawdown in this year’s correction (just shy of -20%) ranks as the 14th deepest peak-to-trough decline since 1871 for US stocks. Note that this year’s drawdown looks milder vs. the daily data since 1950. In other words, drawdowns are uglier in the pre-1950 data–one in particular. The monster, of course, is the 1929-1932 drawdown of -84% — a hole that wasn’t filled until 1954!

As for the current correction, it continues to be a more or less middling affair through May 11. The future’s uncertain, but if the strong rebound of late is an indication we may be looking at one of the faster recoveries on record. But with a global recession raging, and prospects for a vaccine still uncertain, the market’s headwinds remain potent. And so, the question rolls on: Is the market’s rally the foundation for new highs in the near future? Or, as suggested by history, we’re in a bear market rally? Stay tuned.

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By James Picerno

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