Market Returns Following Downturns

Published 03/12/2020

When we consider the historical performance of the U.S. stock market, the data tells us that the greatest rewards to investors have often come after the largest declines, but it requires investors to remain invested through some very difficult times to attain them.1

The global financial markets experienced further declines this week as new information confirmed the spread of the coronavirus across the United States. Markets have been incorporating that information into lower market prices while reflecting additional uncertainty about the financial impact of the coronavirus on companies and the personal impact on our daily lives. While this type of volatility can feel unprecedented, such periods happen frequently when we examine nearly 100 years of historical data.2

In fact, even very recent market history offers several examples. Looking back at 2008, investors will likely remember that markets dropped by almost two times what has occurred so far this year, but what is often forgotten is that there was a H1N1 pandemic in 2009 as well. From April 2009 through April 2010, that flu virus affected more than 60 million people in the United States.3 Yet, in 2009, the market recovered significantly. It should be noted that the coronavirus is not the same as the H1N1 flu virus, as the severity and fatality of the coronavirus is higher. In today’s economy, we do not have the same financial and liquidity strains we were experiencing more than a decade ago.

The exhibit below displays the history of stock market downturns of at least 10%, each of which involved “unusual” market volatility and the subsequent market performance. 

Investors best position their portfolios to successfully capture a recovery by adhering to their written financial plan. Investors who do not remain disciplined and investors who do not have a plan risk locking in the downturn and missing out on the eventual portfolio returns from a recovery if they choose to react emotionally.

In the 2008 video “Why You Stick Around in a Tough Market” that describes why going to cash results in a poor outcome, David Booth, founder of Dimensional Fund Advisors, reminds investors that they should expect higher potential future returns because of the increased risk premium in the market. The story from 2008 is equally relevant today and what Booth discusses in the video proved true in the coming years.


1 “US Equity Returns Following Sharp Downturns.” Dimensional Fund Advisors, March 2020.

2 Ibid.

32009 H1N1 Pandemic (H1N1pdm09 virus).” Centers for Disease Control and Prevention. Page Last Reviewed: June 11, 2019. Accessed March 12, 2020.

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