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Let’s look at how the markets have rebounded through the years

Published 3:29am Friday, October 5, 2012

You might be surprised at how fast the stock market can change to the upside and the downside. Let’s look at how the market has recovered from some notable downturns.

• 2008-2009. The collapse of the subprime mortgage markets triggered a recession and made 2008 the poorest year for stocks since 1931. The Dow Jones Industrial Average fell 10 percent in June 2008, and fell 10 percent again in October 2008, losing 19.12 percent for the year. On March 9, 2009, the major U.S. indices closed at 12-year lows, with the S&P 500 at 676.53.

Then, the market took off. Investors who swore off stocks in early 2009 lost out on one of the great rallies. From the March 9 lows to the end of 2009, the S&P 500 soared 64.83 percent, while the NASDAQ gained 78.87 percent and the Dow gained 59.28 percent.

• 2001-2002. After the four-day closure of the stock market following 9/11, the Dow fell 685 points to 8,920 on Sept. 17. It kept falling, losing 14.26 percent in a week to close at 8,235 on Sept. 21. But what happened next? The Dow closed 2001 at 10,021 — a 21-percent rebound in less than three months.

There were more challenges ahead. On Oct. 9, 2002, the Dow had fallen to 7,286. But on Halloween, the Dow sat at 8,397 — a 10.6-percent gain in 22 days.

As for the people who panicked and bailed out of the stock market, they ended up kicking themselves: in 2003, the DJIA gained 25.3 percent, the S&P 500 gained 26.4 percent, and the NASDAQ gained 50 percent.

• 1987. Oct. 19 was Black Monday: in a contagion of selling exacerbated by unchecked computer technology, the Dow lost 22.6 percent in one day, falling to 1,738, a 508-point loss. (That would be akin to a 2,400-point one-day drop today.) The S&P 500 lost 20.4 percent. By comparison, the initial “Black Monday,” the stock market crash of 1929, represented a 12.8-percent market loss.

Then, the recovery kicked in. During the next two trading days, the Dow gained nearly 300 points — and it closed 1987 at 1,939, gaining back all of the loss and ending up 2 percent for the year. By January 1990, the DJIA was at 2,800.

If you were fortunate enough to invest $1,000 in the S&P 500 index at the close of Black Monday, and reinvested your dividends, you would have wound up with about $10,800, 20 years later. If you had invested in the Dow stocks a week before Black Monday, you would have lost 30 percent on your investment in the crash … but if you held on, your investment would have gained 462 percent over the next 20 years.

• 1974. With investors fretting over rising inflation and the energy crisis, the Dow loses 30 percent of its value during the first three quarters of the year. Suddenly, the Dow gains 16 percent in October. In early December 1974, the Dow is at 577; in July 1976, it hits 1,011.

So while the Dow, S&P and NASDAQ have been through some rough periods (and even a poor decade), historically they have tended to climb over the very long term.

On Aug. 12, 1982, the Dow was at 777. On Jan. 14, 2000, it was at 11,722.98. That’s a 1,500-percent gain in 17 1/2 years. This is one advantage of staying in the market through the downturns. There are periodic descents, but history has been on the investor’s side.

But it is important to keep in mind that investments in securities do not offer a fixed rate of return. Principal, yield, and/or share price will fluctuate with changes in market conditions and, when sold or redeemed, you may receive more or less than originally invested. Past performance is no guarantee of future results.

Jim Warren is a Representative with Multi-Financial Securities Corporation and may be reached at www.warren-brannen-lyle.com, (229) 246-1775 or jim@warren-brannen-lyle.com.

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