18 May 2023
As a day trader, it is essential to understand how stock markets work and how quickly they respond to an economic crisis. Over the years, we have seen some significant market falls in response to a variety of different issues, although, as you will see, recovery times continue to shorten.
In a perfect world, we would have used the FTSE 100 as the barometer to identify stock-market crashes and recovery times, but this only began in 1984. Therefore, we will use the S&P 500 because what happens in America ultimately spreads around the world, America sneezes, and we catch a cold.
If you read up on the Great Depression, you will notice the huge impact this had on stock markets and investors. This wiped out not only the day traders of the time but experienced investors who had not seen anything like it. We will now take a look at the date for this market crash, and the first time the S&P 500 recovered to the previous high:-
Start date: August 1929
Recovery date: September 1954
Duration: 25 years and 2 months
The 1970s were a challenging time for the US economy and global markets, and we also saw the oil crisis. This created a stereotypical "bear market" which, while challenging, had a recovery time nowhere near that of the Great Depression. However, it is fair to say this was a challenging time for day traders!
Start date: December 1972
Recovery date: July 1980
Duration: 7 years and 8 months
So-called “Black Monday” was the start of a worldwide stock market collapse which saw many day traders incurring significant losses. The 1980s was a critical time for the UK stock market, with several privatisations catching the investing public's attention. Keen to ride the wave of optimism before the crash, day trading was seen by many as a licence to print money. Oh, how wrong they were!
Start date: October 1987
Recovery date: October 1989
Duration: 2 years and 1 month
The turn of the century was preceded by considerable investments in tech companies, many of which would never make a profit. This attracted the attention of day traders, with many banking high double-digit profits in single-day trading. Looking back, many traders investing in these new technology shares often had no idea what the companies did; they were riding the wave of hope.
Start date: August 2000
Recovery date: May 2007
Duration: 6 years and 10 months
While the NASDAQ best reflected this particular stock-market crash, we have used dates for the S&P 500 to maintain consistency.
On a par with the 1929 Great Depression, the collapse of the US subprime mortgage market led to a crisis which spread around the globe. Long-established banks/financial institutions were collapsing all around the world. Many were bailed out with colossal taxpayer loans, with others forced to merge with competitors or go to the wall. It is fair to say this was the worst economic crisis for a generation.
Start date: October 2007
Recovery date: March 2013
Duration: 5 years and 6 months
When Covid came, nobody knew whether it would be here today, gone tomorrow, or here forever. Consequently, there was massive volatility in worldwide stock markets. While typically the perfect hunting ground for day traders, many found it impossible to predict what would happen hour by hour, let alone day by day. Ironically, for several reasons, this stock-market crash lasted just seven months before the S&P was back to its previous highs.
Start date: February 2020
Recovery date: August 2020
Duration: 7 months
While no two market crashes are the same, on the whole, the recovery time has fallen significantly since the 1929 Great Depression. For example, the 2007 financial crisis was compared to the Great Depression, with the difference in recovery times a staggering 19 years and 8 months. Many day traders will recognise the ongoing condensing of recovery periods for stock markets and often individual shares/sectors.
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