Morningstar - Q2 2021 - 42

Strategies

EXHIBIT 1

Barely a Blip It seemed bad at the time, but the quick recovery meant the COVID-19 crash was the shortest in the long history
of market crashes.
Growth of $1 and Peak Values (Real) of the U.S. Stock Market, January 1871-March 2021

Cumulative Real Wealth

Highest Cumulative Real Wealth
$100,000

Peak-Trough
Trough-Recovery
Areas of Pain Index

Logarithmic Scale

$22,580

Lost Decade
Pain Rank
3

Vietnam and Inﬂation
Pain Rank Pain Index Decline Rank
4
3
80.41%

$22,580

Pain Index Decline Rank Decline
2
85.51%
54.00%

10,000

Decline
51.87%
10

1,000

2 nd Part of Great Depression and World War II
Pain Rank

Pain Index Decline Rank
5
59.57%

WWI and Inﬂuenza
Pain Rank Pain Index
2
89.34%

Decline
49.93%

COVID-19 Crash & Recovery

$22,580
$22,580
Feb 2021

Decline Rank Decline
50.96%
4

$19,044
Jan 2020

100
20,000
USD

17
12
15
11

Crash of 1929 and 1st Part of Great Depression

13 16

Pain Rank Pain Index
1
100.00%

Decline Rank
1

Decline
79.00%

$15,244
Mar 2020

1
1870

1885

1900

1915

1930

1945

1960

1975

1990

2005

03/2021

Sources: Ibbotson (2020),6 Morningstar Direct, Goetzmann, Ibbotson, and Peng (2000),7 Pierce (1982),8 www.econ.yale.edu/~shiller/data.htm. Data as of 02/28/21.

The exhibit illustrates another important aspect
of U.S. market return history. The red line traces
the growth of $1 until the start of a decline.
There, the line shows the peak value of the market
at that time and then travels horizontally until
the market recovers to its previous high. This is the
peak cumulative value line. The gap created,
shaded in the chart, shows the depth and length
of each decline. Some declines are bigger
than others. How long each lasts is unpredictable.
As the exhibit shows, in the past 150 years,
there have been 18 bear markets, including the

COVID-19 crash, suggesting that on average they
occur about once every eight years. The
crash of 1929 along with the first part of the Great
Depression remains the worst, with a 79%
loss. The second worst is the 54% decline over the
Lost Decade, from August 2000 to February
2009. This period included the dot-com bubble
burst and then a recovery, but the recovery
was not enough to get back to the August 2000
level (from an inflation-adjusted perspective). Then
came the global financial crisis and the crash
of 2007- 09. It was not until May 2013, more than

12 years later, that the market index was back at
its August 2000 level. It can be helpful to consider
the COVID-19 crash through the lens of these
other bear markets. You can see in the magnified
part of the chart that the downturn-while
sudden and sharp-was a relatively minor blip in
this larger picture of market gains and
declines. The history of market crashes is long-
they've been occurring regularly since the
late 19th century-and being able to recognize
their regularity in the data can offer us a better
understanding of the risks of equity investing.

6 Ibbotson, R.G. 2020. 2020 SBBI Yearbook: Stocks, Bonds, Bills, and Inflation. (Chicago: Duff & Phelps).
7 Goetzmann, W.N., Ibbotson, R.G., & Peng, L. 2000. " A New Historical Database for the NYSE 1918 to 1925: Performance and Predictability. " Journal of Financial Markets, Vol. 4.
8 Pierce, P.S., ed. 1982. The Dow Jones Averages, 1885 -1980. (Homewood, Ill.: Dow Jones-Irwin).

Morningstar Q2 2021

http://www.econ.yale.edu/~shiller/data.htm

Morningstar - Q2 2021

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