The S&P 500 Index of stocks had its worst first half since 1970, losing almost 21% in the year’s first six months.
The S&P 500 is a stock market index that is viewed as a measure of how well the stock market is performing overall. It includes around 500 of the largest U.S. companies. The index fell 20.6% in the past six months, from its high-water mark in early January — the steepest plunge of its kind dating to 1970, as investors worried about decades-high inflation.
Is recovery from S&P’s downfall impossible? Absolutely not. During the 2008 financial crisis and the Great Recession, the S&P 500 fell 46.13% from October 2007 to March 2009 but recovered all of its losses by March 2013.
Another more recent example to consider is the impact of the COVID pandemic on the market– in 2020, the coronavirus pandemic sent the world into a recession and equity markets reeling as the S&P 500 plummeted by nearly 20%. However, The S&P bounced back in the second half of 2020 and reached several all-time highs in 2021.
The Tech Bubble
In 2000, the stock market experienced a bubble. This period was marked by overvaluations, excess public enthusiasm for stocks, and speculation in the technology sector. This bubble exploded between 2000-2002, which caused a major hit to NASDAQ, while the S&P 500 also took a lesser hit. However, the S&P recovered in 2007, reaching new highs due to growth in housing, financial sector stocks, and commodity stocks.
The Oil Crisis and 1980-1982 Recession
The Federal Reserve raised interest rates and intervened, leading to declining inflationary pressures. This led to the bull market from 1982-2000- stock prices skyrocketed and the S&P 500 increased.
From 2008-2009, a decline in house prices sparked an environment of intense fear which led to people thinking that stocks were a bad investment.
The S&P 500 bottomed out in March 2009 during the financial crisis that has come to be known as the Great Recession. The decline was the largest drop in the S&P index since World War II.
Companies included in S&P 500 have the following characteristics:
- Must meet market capitalization requirements
- Are U.S. publicly traded companies
- To be eligible for S&P 500 index inclusion, a company should be a U.S. company, meet market capitalization requirements, be highly liquid, have a public float of at least 10% of its shares outstanding, and its most recent quarter’s earnings and the sum of its trailing four consecutive quarters’ earnings must be positive.
- Are listed as an eligible US exchange
- Have positive as-reported earnings over the most recent quarter
From 1979 to 2020, the S&P 500 Index returned an average of 12.35% per year, and investors may have expected similar 12% returns in any individual year. However, there were only three years in which the Index returned between 9% and 12% during this period. Volatility is much easier to tolerate when you expect it.
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