The worst first half for stocks since 1970? It’s not as bad as it looks.
The headlines are everywhere: with one day left in the first half of the year, the S & P 500 is down 19.9%, its worst six month start to the year since 1970. Since 1970? Sounds like the world is ending. But it’s not. Let’s put some perspective on what is admittedly a lousy start to the year. First, get away from the obsession over the calendar year. There are plenty of periods where stocks have fallen 20% or more over any six month period, including drops of as much as 43%. Here are all the 6-month periods when stocks have fallen more than 20% since the inception of the modern S & P index in 1957. 6 Months Ending Index Loss 2/28/2009 -42.7% 11/30/2008 -36.0% 1/31/2009 -34.8% 9/30/1974 -32.4% 3/31/2009 -31.6% 10/31/2008 -30.1% 12/31/2008 -29.4% 9/30/2002 -28.9% 8/31/1974 -25.0% 6/30/1962 -23.5% 6/30/1970 -21.0% 11/30/1987 -20.6% 12/31/1974 -20.3% Source: Adviser Investments There’s been 13 periods where the S & P has dropped more than 20% since 1957. That works out to about once every five years. Not that common, but certainly not unheard of. There’s something else that jumps out of this data: most of the 20% drops have occurred in the last twenty years, and the majority occurred around the Great Financial Crisis between 2007 and 2009. Seven of the eight worst 6-month drops have occurred since 2002. And yet, the S & P is up 270% since 2002. How about covid, you ask? The worst 6-month period saw a drop of 13.2% in the 6 months ending March 2020. Not even close to a 20% drop. So let’s keep the alarmist headlines in perspective. I’ll leave the last word to Dan Wiener from Adviser Investments, who also runs the Independent Adviser for Vanguard Investors newsletter: “To imply that you’d have to have at least one foot in the grave to have experienced a six-month loss of 20% is silly, and disingenuous.”