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Dec. 26, 2018, 7:56 a.m. EST

Here’s how the stock market has fared after similarly brutal losses in a quarter

History’s encouraging lesson: take the long view

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By Ben Carlson


IStockphoto

Captain Obvious here: It hasn’t been a great quarter for the stock market.

The S&P 500 /zigman2/quotes/210599714/realtime SPX +0.39%   is down roughly 17% through Friday.

There have been more than 370 quarterly returns since 1926. If the quarter were to end today, this would be the 14th worst in that time frame. The list of the other big down three month periods don’t exactly elicit confidence:

Just under half of the worst S&P 500 quarters occurred in the 1930s, only the worst economic and stock market environment in modern history.

This list also includes the brutal bear market of the mid-1970s, the Nifty Fifty crash, Black Monday, the flash crash of 1962, and the tail end of the 2000-2002 bear market.

Losses of this magnitude in such a short period can become paralyzing when trying to think about what happens next. The past is always easier than the present because we know what happened in the past but have no idea what’s going to happen in the future.

Even if it doesn’t offer a perfect road map for what’s to happen next, I do think the past can provide a range of potential outcomes, even though the future always creates its own path.

There’s nothing we can do now, but let’s see what happened going forward from the previous terrible quarters in the market. Here are the same periods with one, three and five-year performance figures from the end of these horrific quarters:

You can see the ensuing 12-month, 36-month, and 60-month performance was positive the majority of the time, with nice looking average gains.

Just for the fun of it, let’s take a look at this data ex-1930s, under the assumption we don’t go into another depression:

Again, not bad.

Small-cap stocks have been hit even harder than their large-cap brethren. The Russell 2000 /zigman2/quotes/210598147/delayed RUT -0.33% is down almost 24%. If this were to hold over the next week or so, this would be the fourth worst quarter…ever.

/zigman2/quotes/210599714/realtime
US : S&P US
3,329.62
+12.81 +0.39%
Volume: 2.10B
Jan. 17, 2020 4:20p
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/zigman2/quotes/210598147/delayed
US : US Composite
1,699.64
-5.58 -0.33%
Volume: 1.19M
Jan. 17, 2020 4:30p
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