With the news from the Bank of England saying they expected the longest recession since records began, I thought it would be a good idea to have a fully scaled out look at the stock market to see what that could mean for the future.
Some questions I was asking myself:
if you bought at the absolute peak of each boom and bust cycle: how much did it drop by? and how long before you would have made your money back. ?
If you managed to 'time' the bottom of the market what sort of returns would you get and how long till the next peak ?
how often and how big are these major events ?
Are there any trends that seem obvious ?
Some interesting things I learned:
1) During the Great Depression SPX lost 85% of its value and it would have taken 24 years before it revisited the peak. Ouch! keeping in mind World War 2 happened during that time.
2) On the flip side if you had entered the market at the bottom a couple years later (1930's) you would have seen a 30x return in 40 years
3) in 150 years the SPX has had a return of circa x1000. However within those years the length of time it takes to get a 10x return has been reducing - is that a trend that will continue ?
3) The other big recession events dipped to circa -50% but actually in the grand scheme recovered relatively quickly , it seems as we move forward in time both the frequency and the recovery is drastically quicker.
4) COVID was obviously a massive event but, at this timescale, barely even registers on the chart.
5) if you take historic big crashes/dips and apply that same percentage to the current high we get a value of 2400 (-50%) and 720( -85%)... Could around one of these values be the 'bottom' ? Interesting that the 720 mark matches the 2008 financial crash support zone
TAKEAWAY
I really have no idea where and when the market will bottom ! But it's always good to remind yourself of the bigger picture, as the saying goes 'History doesn't repeat itself but it often rhymes' . Therefore if we do have a crazy big crash during this recession and it does indeed appear to bottom out by summer 2024 it's probably going to be a great time to enter the market.
Some questions I was asking myself:
if you bought at the absolute peak of each boom and bust cycle: how much did it drop by? and how long before you would have made your money back. ?
If you managed to 'time' the bottom of the market what sort of returns would you get and how long till the next peak ?
how often and how big are these major events ?
Are there any trends that seem obvious ?
Some interesting things I learned:
1) During the Great Depression SPX lost 85% of its value and it would have taken 24 years before it revisited the peak. Ouch! keeping in mind World War 2 happened during that time.
2) On the flip side if you had entered the market at the bottom a couple years later (1930's) you would have seen a 30x return in 40 years
3) in 150 years the SPX has had a return of circa x1000. However within those years the length of time it takes to get a 10x return has been reducing - is that a trend that will continue ?
3) The other big recession events dipped to circa -50% but actually in the grand scheme recovered relatively quickly , it seems as we move forward in time both the frequency and the recovery is drastically quicker.
4) COVID was obviously a massive event but, at this timescale, barely even registers on the chart.
5) if you take historic big crashes/dips and apply that same percentage to the current high we get a value of 2400 (-50%) and 720( -85%)... Could around one of these values be the 'bottom' ? Interesting that the 720 mark matches the 2008 financial crash support zone
TAKEAWAY
I really have no idea where and when the market will bottom ! But it's always good to remind yourself of the bigger picture, as the saying goes 'History doesn't repeat itself but it often rhymes' . Therefore if we do have a crazy big crash during this recession and it does indeed appear to bottom out by summer 2024 it's probably going to be a great time to enter the market.