With Greece headlines dominating news stories over this past weekend, investors might be on edge regarding future equity market returns on Monday and the coming weeks. A number of headlines this evening are using the words plunge and slide as U.S. futures are down less than 1.5%. Yes, much can change before the U.S. markets open Monday morning, but it is the sensational headline that generates reader clicks and article views. I have written several times over the past few years about these shocks to the equity market and how the market damage generally has been short lived, (here and here.)
S&P Dow Jones Indices published a report in September 2013, Shocks & Stocks, that analyzed market shocks and the initial market decline and the time necessary to recover the losses. Included in the report is the below table.
|From The Blog of HORAN Capital Advisors|
As can be seen in the above table, of the fourteen shock events listed, the average market decline was 5.3% and losses were recovered in an average of 14 days. Several of the losses were much greater than the average and the recovery time period much larger than the average. S&P notes though,
A a word of caution for investors wishing to sell stocks early Monday morning, remember, these crisis events generally have a short lived impact on the return in equity indices.
- "Granted, even though selected events took much longer to play out than the medians would suggest, these extreme situations usually occurred within the confines of a long-term bear market and did not precipitate the initial decline. Examples of these include: 1) Pearl Harbor, 2) President Nixon’s resignation, 3) the terrorist attacks on 9/11, and 4) the collapse of Lehman Brothers. So should history repeat itself, and there is no guarantee it will, unanticipated events that occur within bull markets that throw markets for a loop are typically assessed for their economic impact in short order, allowing opportunistic traders to step in and quickly push share prices back to break-even and beyond."