Stock Market Rallies from Recessionary Lows
Chart of the Week for September 25 - October 1, 2009
The stock market tends to be a forward-looking economic indicator. In other words, the market tends to fall before recessions are officially declared, and it tends to rise before economic recoveries actually begin. The chart above illustrates the magnitude of the equity rally corresponding to each U.S. economic contraction since 1923. The columns in the chart represent the total return of the S&P 500 Index from the Index's low during the contraction to the official end of the contraction.
As evidenced by the lack of negative data points in the chart above, the S&P 500 Index has consistently rebounded strongly from its lows before the end of each economic contraction. In fact, the average rebound has been 24.5%, as illustrated by the yellow line. The most recent rally, if sustained to the end of the current economic contraction, is the largest by historical standards. From the March 2009 lows until September 17, 2009, the S&P 500 Index has returned 57.0%. Investors should be mindful that a return between two time periods ignores the market volatility between those time periods.
The data depicted above illustrates that the stock market can produce positive returns even during an economic contraction. As stated often, past performance does not guarantee future results and investors should consider their risk tolerance prior to investing. It is important for investors to be comfortable with the level of risk in their portfolio and have a disciplined approach to investing with the focus on their financial goals.
This illustration was compiled by information from outside sources. These companies are not affiliated with ICMA-RC. This information is being provided for educational purposes and is not intended to be construed as or relied upon as investment advice. ICMA-RC does not offer specific tax or legal advice. Individuals are advised to consider any new investment strategies carefully prior to implementing.
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The performance data quoted represents past performance. Past performance is no guarantee of future results. Investment returns and principal value will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data illustrated. For performance data current to the most recent month end, contact ICMA-RC Services, LLC by calling 800-669-7400 or by writing to 777 North Capitol Street, NE, Washington, DC 20002-4240. Para asistencia en Español llame al 800-669-8216. Performance data current to the most recent quarter end is available by visiting www.icmarc.org.