Download - Downturns & Recoveries
© 2013 Morningstar. All Rights Reserved. 3/1/2013
Downturns and Recoveries
Stock Market Contractions and Expansions1973–2012
Past performance is no guarantee of future results. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. © 2013 Morningstar. All Rights Reserved. 3/1/2013
1
10
$100
2009200319971991198519791973
–200
0
200
400%
0
• Contraction• Expansion• Stocks
355.1%
$41.6
–42.6% –14.3% –16.5% –29.6% –14.7% –15.4%–44.7% –50.9%
87.0%
279.6%
71.5% 62.6%108.4% 110.7%86.0%
Market Downturns and Recoveries1926–2012
Past performance is no guarantee of future results. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. Downturns are defined by a time period when the stock market value declined by 10% or more from its peak. © 2013 Morningstar. All Rights Reserved. 3/1/2013
–83.4%
–21.8%
–10.2%
–15.0%
–22.3%
–15.6%
–29.3%
–42.6%
–14.3%
–16.5%
–29.6%
–14.7%
–15.4%
–44.7%
% Loss
–50.9%
34 months
6 months
7 months
5 months
6 months
8 months
19 months
21 months
14 months
20 months
3 months
5 months
2 months
25 months
Downturn
16 months
151 months
35 months
5 months
7 months
10 months
6 months
9 months
21 months
5 months
3 months
18 months
4 months
49 months
37 months
3 months
Recovery
Mar 2009–Mar 2012Nov 2007–Feb 2009
Sep 1929–Jun 1932 Jul 1932–Jan 1945
Jun 1946–Nov 1946 Dec 1946–Oct 1949
Aug 1956–Feb 1957 Mar 1957–Jul 1957
Aug 1957–Dec 1957 Jan 1958–Jul 1958
Jan 1962–Jun 1962 Jul 1962–Apr 1963
Feb 1966–Sep 1966 Oct 1966–Mar 1967
Dec 1968–Jun 1970 Jul 1970–Mar 1971
Jan 1973–Sep 1974 Oct 1974–Jun 1976
Jan 1977–Feb 1978 Mar 1978–Jul 1978
Dec 1980–Jul 1982 Aug 1982–Oct 1982
Sep 1987–Nov 1987 Dec 1987–May 1989
Jun 1990–Oct 1990 Nov 1990–Feb 1991
Jul 1998–Aug 1998 Sep 1998–Nov 1998
Sep 2000–Sep 2002 Oct 2002–Oct 2006
Periods of Consecutive Negative Stock Returns1926–2012
Past performance is no guarantee of future results. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. © 2013 Morningstar. All Rights Reserved. 3/1/2013
20%
37%
29%
–12%
–0.4%–10%
–26%
–15%
–9%–12%
–22%
Compound annual stock market return from 19262012 was 9.8%
–50
–40
–30
–20
–10
0
10
20
30
40
50
60% Return
1939 1940 1941 1942 2000 2001 2002 20031973 1974 1975
54%
–25%
–8%
–43%
–8%
1929 1930 1931 1932 1933
Past performance is no guarantee of future results. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. Four market crises defined as a drop of 25% or more in the Standard & Poor’s 500® index. © 2013 Morningstar. All Rights Reserved. 3/1/2013
0.1
10
1
$100
Oil crisis
Crises and Long-Term PerformanceMarket declines in historical context, Jan. 1970–Dec. 2012
Stock market crash
The dot-com crash
Banking andcredit crisisCompound annual return 9.9%
$58.82
1970 1975 1980 1985 1995 2000 20051990 2010
0.50
$1
73 74 75 76
0.50
$1
87 88 89 07 08 09 1110 12
0.50
$1
0.50
$1
00 01 02 03 04 05 06
Stock Performance After Recessions1953–2012
Past performance is no guarantee of future results. Cumulative returns of large and small stocks after recessions 1953–2012. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. © 2013 Morningstar. All Rights Reserved. 3/1/2013
2.8%
11.9%
After 3 yearsAfter 1 yearAfter 6 monthsAfter 1 month
0
10
20
30
40
50
60
70
80% Return
• Small stocks• Large stocks
17.4%
32.9%
44.7%
75.3%
4.8%
20.4%
The Importance of Staying InvestedEnding wealth values after a market decline
Past performance is no guarantee of future results. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. © 2013 Morningstar. All Rights Reserved. 3/1/2013
Jan 07 Jan 08 Jan 09 Jan 10 Jan 11 Jan 12
50
60
70
80
90
100
$120k
110
$114,561
$54,547
$74,640
• Stay invested in stock market
• Exit market and reinvest after 1 year
• Exit market and invest in cash
• Recession (Dec 2007–Jun 2009)
History of Interest RatesJuly 1954–December 2012
Past performance is no guarantee of future results. Each bar shows the range of yield for each bond over the time period July 1954 to December 2012. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. © 2013 Morningstar. All Rights Reserved. 3/1/2013
Current
5.25%
6.47%5.92%
Average: 5.32%
0
5
10
15
20%
Federalfunds
LT governmentyield
IT governmentyield
1-yr government yield
0
2
4
6
8
10
12
14
16
18% Yield
1996 200619861976196619561946
Bond Yields During Recessions 1946–2012
Past performance is no guarantee of future results. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. © 2013 Morningstar. All Rights Reserved. 3/1/2013
0.16%
2.41%
Shaded regions denote economic recessions
• Short-term govt bonds (4/53–12/12)• Long-term govt bonds
Stock Returns and Monetary PolicyAnnual returns, 1955–2012
Past performance is no guarantee of future results. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. © 2013 Morningstar. All Rights Reserved. 3/1/2013
–40
–30
–20
–10
0
10
20
30
40% Return
1990 1995 2000 2005198519601955 1965 1975 19801970 2010
• Effective fed funds rate• Annual stock returns • Average return = 10% Gray shaded regions denote economic recessions
Correlations of Various Asset Classes with the MarketJanuary 1980–December 2012
Past performance is no guarantee of future results. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. © 2013 Morningstar. All Rights Reserved. 3/1/2013
Small stocks
International stocks
Commodities
REITs
Gold
Long-term corp bonds
Long-term govt bonds
Intermediate-termgovt bonds
Treasury bills
0.71
0.57
0.06
0.47
0.04
0.23
0.18
0.13
0.00
0.95
0.93
0.50
0.81
–0.06
0.33
0.03
–0.32
–0.11
0.76
0.66
0.21
0.57
0.04
0.21
0.08
0.08
0.03
• Low • Medium • High
Before recession
Jan 1980–Nov 2007
During recession
Dec 2007–Jun 2009
Entire period
Jan 1980–Dec 2012
U.S. Market Recovery After Financial CrisesCumulative return of all-stock portfolio after various events
Past performance is no guarantee of future results. Returns reflect the percentage change in the index level from the end of the month in which the event occurred to one month, six months, one year, three years and five years after. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. © 2013 Morningstar. All Rights Reserved. 3/1/2013
40
20
0
–40
100% Return
80
60
October 1987:Stock market crash
August 1989:U.S. savings and
loan crisis
September 1998:Long-Term Capital
Management’s bailout
March 2000:The dot-com crash
September 2001:Terrorist attack
October 2008: Banking and credit crisis
–8.2%
5.5%
14.8%
34.3%
97.1%
–0.4%–4.0%–5.0%
30.1%
58.1%
8.1%
27.3%27.8%
6.2%5.1%
–3.0%–3.6%
–21.7%
–40.9%
–14.8%
40.1%
1.9%
11.0%
–20.5%
12.6%
–7.2%–8.5%
9.8%
38.3%
–20
Portfolio
100% stocks
• After 1 month
• After 6 months
• After 1 year
• After 3 years
• After 5 years
40
20
0
–20
100% Return
80
60
October 1987:Stock market crash
August 1989:U.S. savings and
loan crisis
September 1998:Long-Term Capital
Management’s bailout
March 2000:The dot-com crash
September 2001:Terrorist attack
October 2008: Banking and credit crisis
–4.8%
5.2%
14.3%
34.3%
90.1%
–0.2%–2.0%–2.3%
34.6%
59.2%
4.0%
13.2%12.3%11.3%
20.3%
–2.1%–0.7%
–8.9%
–15.3%
10.3%
42.3%
3.0%5.0%
–7.1%
19.6%
1.5%
–0.4%
11.7%
44.2%
U.S. Market Recovery After Financial CrisesCumulative return of balanced portfolio after various events
Past performance is no guarantee of future results. Returns reflect the percentage change in the index level from the end of the month in which the event occurred to one month, six months, one year, three years and five years after. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. © 2013 Morningstar. All Rights Reserved. 3/1/2013
Portfolio
60% stocks
40% bonds
• After 1 month
• After 6 months
• After 1 year
• After 3 years
• After 5 years