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Published by: Nathan Smith Date: March 27, 2020

Since the highs near the end of February, markets at their worst were down nearly 40%, ending the prior bull market that lasted eleven years. The effects of the slowdown in the economy have started to show up in the data. This week a record 3.3 million Americans filed for unemployment benefits, with expectations of more coming in the following weeks. The Federal Reserve announced a renewed program of buying government bonds & mortgage-backed securities, lowered interest rates to 0%, and revived the liquidity programs last seen during the financial crisis. Congress also voted to enact a stimulus package that could see upwards of $2 trillion pouring into the economy over the coming months.

It is impossible to know what the ultimate cost from Covid-19 will be in both human and economic terms, and it is too early to tell if this lasts a few more weeks or longer. But during these types of turbulent economic times, it is useful to go back and observe how the markets have dealt with prior crises, not in the weeks or months following the event, but after a period of one, three, and five years. The chart below details how the markets have responded to crisis periods over the last four decades.

Performance of a Balanced Strategy: 60% Stocks, 40% Bonds
Cumulative Total Return

These examples are over the last forty years, and in every case, the market went higher in the years preceding the event. But going beyond the past four decades, investors need to keep in mind that these periods of crisis aren’t just unique to our recent history, but are in fact, a characteristic of markets both at home and abroad. Stretching our chart out further, you can see how the market has reacted through time to crises of varying degrees.

A History of Market Ups and Downs
S&P 500 Index total returns in USD, January 1926-December 2019
Using a 20% threshold for downturns

There are lots of analysts and pundits that will say that this type of crisis is different and that markets will never recover from this type of human catastrophe. But over the last 120 years, the markets have weathered two World War’s, a Great Depression, raging inflation to name a few, and shown each time that the crisis period does end and that the economy and markets rebuild themselves better than what they were before.

As we continue to watch this crisis evolve, let us be reminded that we are all in this together and that this too shall pass.