How Far Back Would a Big Market Crash Take Us?

Over the last nine years, the S&P 500 has been on a rampage, rising from a market low of around $757 in March 2009 to it’s current price of $2,648.


However, in the past few days we have seen the price drop about 7%, which can be seen by this hiccup at the end of the graph:


Where will the price go from here? Nobody has a clue. Anyone who claims they know is lying.

Perhaps the market will rebound and continue to surge higher through 2018. Or maybe this really is the start of a correction. Only time will tell.

The only thing we know for sure is how the S&P 500 has historically performed, which is the source for the following thought experiment:

If we experience the equivalent of the worst S&P 500 annual returns ever in 2018, how far back would that take investors? Let’s have a look…

A Thought Experiment

This table shows the five years with the worst S&P 500 returns ever:


Let’s imagine that during the rest of 2018 the S&P 500 sheds 43.84% of it’s current price, just like it did during the Great Depression in 1931. Here’s what that would look like:


This would take us back to the same price we saw in January 2013. This would match the worst annual return ever, which isn’t an impossible scenario, but it’s unlikely. Even during the recent financial crisis, we didn’t see a price drop this severe.

Suppose instead we experienced a 25.90% drop, just like we saw in 1974. This would still be a massive crash, but not nearly as horrific as the 43.84% collapse of 1931. Here’s what that would look like:

A 25.90% drop from it’s current price would leave the S&P 500 at the same price point as March 2016.