Let’s face it, this is uncharted territory—in modern history we’ve never had to contend with anything like the COVID-19 outbreak and the global economic shutdown that has followed. Regardless, here we are: trying to hold the economy in suspended animation until we get the all clear to go back to old-normal life. It’s still too early to officially declare a recession though it seems like more of a formality at this point. So what can we expect from the stock market after this crisis is over and we can go outside again? What might the recovery look like?
Although the current situation is unprecedented, bear markets and recessions are not. Yes, this one is different, but to be fair the ones before it were too. And they all have one thing in common: they eventually end.
Ready to quarantine the losses
According to Dimensional, in the one, three, and five years following a correction up to a bear market (20% decline from recent highs), the stock market has averaged an annualized return of nearly 10% across all time periods.
Average Stock Market Returns After Decline
As you’ve likely heard by now, the U.S. has fallen into the fastest bear market in history: it took only 16 trading days for the S&P 500 to fall over 20% from the high on February 19. March 2020 also made history as the most volatile month for the S&P on record.
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