10. Black Monday
Pain Index: 7.73%
Maybe the low score comes as a surprise to those who lived through the period from August to November 1987, when the market declined 30.21%. But the recovery period was less than two years, with stocks hitting their previous highs in July 1989.
9. Cornering of Northern Pacific Stock
Pain Index: 8.18%
No one alive today was around during this crash, in which stocks fell 30.41% after peaking in April 1899, and hitting bottom in June 1900. This short squeeze occurred when J.P. Morgan and E.H. Harriman fought for control of the railroad’s stock. The stock market got back to par in March 1901.
8. Panic of 1907
Pain Index: 8.23%
Also known as the 1907 Bankers’ Panic or Knickerbocker Panic, caused largely by the bankruptcy of two brokerage firms, the Panic of 1907 wrought a 34.22% decline from the peak in January 1906 to the bottom in October 1907. The market reached par again in August 1908.
7. Inflationary Bear Market
Pain Index: 14.22%
A bear market arrived just before Richard M. Nixon was inaugurated as president, with inflation averaging 6% a year, the Vietnam War in full swing, and a weak economy all culminating in a 35.54% drop from November 1968 to the trough in June 1970. The market returned to its previous high in November 1972.
6. Postwar Bear Market
Pain Index: 29.06%
The Greatest Generation may remember the heady days post-World War II, but from May 1946 through February 1948, there was a 37.18% drop in the stock market, which only came back to par in October 1950.
5. Great Depression & World War II
Pain Index: 59.57%
The later part of the Great Depression was bad in many ways: poverty, war and a 49.93% stock market decline from February 1937 to March 1938, only to reach par again in February 1945 (see No. 6 for what happened a year later).
4. Inflation, Vietnam & Watergate
Pain Index: 80.41%
These were troubled times for the United States. But from when the market hit its peak in December 1972 and dropped 51.87% to its trough in September 1974, not only was the economy shaken, President Nixon resigned over the Watergate scandal. It wasn’t until June 1983 when the market reached its prior high.
3. Lost Decade (Dot-com bust & global financial crisis)
Pain Index: 85.51%
From its high on August 2000, the market fell 54% until February 2009. Sure, it seemed like the stock market caught its footing during this period and that the dot-com bust was a passing moment, but it still hadn’t returned to previous highs. Then the real disaster struck as the global financial crisis affected probably more Americans, as well as the global economy. The market didn’t reach its 2000 high again until May 2013.
2. WWI and Influenza
Pain Index: 89.34%
Perhaps this should be a lesson for today. From a peak in June 1911, even before the “Great War” started, the stock market fell 50.96% to a trough in December 1920, during which the United States joined the war effort and the Influenza of 1918 was hitting U.S. shores (during which some 675,000 Americans died). The market didn’t hit par until December 1924.
1. 1929 Crash & Great Depression
Pain Index: 100%
There were two parts to the Great Depression. The stock market dropped 79% from its August 1929 high to its May 1932 trough. It didn’t crawl back until November 1936, only to begin another drop a year later. (See #5).
Morningstar Canada’s director of research, Paul D. Kaplan, wanted to determine what prior market crashes could teach us about the current one, so he calculated a “Pain Index” that looks at 150 years in market drops and defines what makes them different, from let’s say, the mother of all market falls, the 1929 crash and Great Depression.
The Pain Index’s purpose is to measure severity of each market crash via degree of the decline and how long it took to get back to the prior stock market high or cumulative level.
The coronavirus crash was significant — the S&P 500 dropped 34% by March 23 from its all-time highs in February. While it has climbed more than 25% since then, it will take some time to see if the market has really quit falling and if so, how long it will take to get back to the original high of roughly 3,393.
The Pain Ratio for each market drop, or episode, is the ratio of the area between the cumulative value line and the peak-to-recovery line, compared with that area for the worst market decline in the past 150 year — the 1929 crash and first part of the Great Depression, which scores 100% on the Pain Index. Check out the slideshow to see how close other market crashes came to that level of severity, according to Kaplan’s calculations.
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