Crisis Events and the US Stock Market

When the crisis is sudden and the future is unknown, a long-term focus is paramount.

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The US stock market has experienced its share of crisis events—from wars to political upsets, to many unforeseen human tragedies. The table below highlights 25 international crises that have occurred since 1940. During these events, the Dow Jones Industrial Average (DJIA) dropped by an average of about 6%. In all but four cases, the market returned to positive territory within six months of the end of each decline.

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Event

DJIA Reaction Dates

Date Range % Gain/Loss

Six Months Later
Fall of France 5/9/40 - 6/22/40 -17.1% 7.0%
Pearl Harbor 12/6/41 - 12/10/41 -6.5% -9.6%
Korean War 6/23/50 - 7/13/50 -12.0% 19.2%
Eisenhower Heart Attack 9/23/55 - 9/26/55 -6.5% 11.7%
Cuban Missile Crisis 10/19/62 - 10/27/62 1.1% 24.2%
JFK Assassination 11/21/63 - 11/22/63 -2.9% 15.1%
US Bombs Cambodia 4/29/70 - 5/14/70 -7.1% 13.5%
Arab Oil Embargo 10/16/73 - 12/05/73 -18.5% 7.2%
Nixon Resigns 8/7/74 - 8/29/74 -17.6% 12.5%
USSR in Afghanistan 12/24/79 - 1/3/80 -2.2% 6.8%
Falkland Island Wars 4/1/82 - 5/7/82 4.3% 20.8%
US Invades Grenada 10/24/83 - 11/7/83 -2.7% -3.2%
US Bombs Libya 4/14/86 - 4/21/86 2.8% -1.0%
Financial Panic of '87 10/2/87 - 10/19/87 -34.2% 15.0%
Invasion of Panama 12/15/89 - 12/20/89 -1.9% 8.0%
Gulf War 1/16/91 - 1/17/91 4.6% 15.0%
World Trade Center Bombing 2/25/93 - 2/27/93 -0.3% 8.5%
Oklahoma City Bombing 4/18/95 - 4/20/95 1.2% 12.9%
Asian Stock Market Crisis 10/7/97 - 10/27/97 -12.4% 25.0%
US Embassy Bombing in Africa 8/6/98 - 8/14/98 -1.8% 10.4%
September 11th Attacks 9/10/01 - 9/21/01 -14.3% 24.8%
War in Afghanistan 10/5/01 - 10/09/01 -0.7% 12.4%
Iraq War 3/19/03 - 5/1/03 2.3% 15.6%
London Train Bombing 7/6/05 - 7/7/05 0.3% 5.6%
Bear Stearns Collapse 3/14/08 - 3/14/08 0.0% -4.4%
Average   -5.7% 10.9%

The performance data quoted represents past performance, which is no guarantee of future results.

Source: Morningstar and Bloomberg. As of December 31, 2019. The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally the leaders in their industry. It has been a widely followed indicator of the stock market since October 1, 1928. Indices are unmanaged and their returns assume reinvestment of dividends and, unlike mutual fund returns, do not reflect any fees or expenses associated with a mutual fund. It is not possible to invest directly in an index.

 

How Should You React to a Market Crisis?

A sudden market drop can be a frightening event for many investors. Maintaining your focus in the midst of market mayhem can help you to avoid making hasty decisions that could derail your long-term plans.

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