/Market Extra: The Dow is on track for its worst quarterly performance since the 1987—here’s how the stock market tends to perform afterward

Market Extra: The Dow is on track for its worst quarterly performance since the 1987—here’s how the stock market tends to perform afterward


How bad has it been for the U.S. stock market in the first three months of 2020?

In a word, historic, but returns are almost certain to improve over the longer term despite the current pain, if history is any guide.

Indeed, it has been punishing for investors, as the market went into a coronavirus-sparked free fall that so far is putting the 124-year-old Dow Jones Industrial Average on pace to register its worst quarterly loss since the fourth quarter of 1987. The three-month skid also would represent the steepest first-quarter drop, from January to the end of March, in the index’s history, according to Dow Jones Market Data.

The dizzying equity meltdown has amounted to a more than 21% quarterly skid thus far for the Dow Jones Industrial Average

DJIA, -0.84%,

while the S&P 500 index

SPX, -0.91%

 has declined more than 18% over the quarter, which would mark the broad-market index’s sharpest such decline since the 2008 financial crisis.

Check out the table below, as of late-morning Tuesday:

Index Quarterly % change Best/Worst since
Dow -21.5% Q4 1987
S&P 500 -18.4% Q4 2008
Nasdaq Composite Index -12.6% Q4 2018
Source: Dow Jones Market Data

On top of that the decline for the S&P 500 index would be the first time the stock gauge has ended each of the first three months of a calendar year in negative territory, as it did in January, off 0.2%, February, down 8.41%, and is on pace to at the end of this session in March with a loss of at least 10%.

The S&P 500 hasn’t been down in those three months successively since 2008 and a January to March stretch of losses has only occurred seven other times in the history of the 63-year-old stock index.

Meanwhile, the Nasdaq Composite Index

COMP, -0.39%

 has declined more than 12.5%, which would represent the worst quarterly decline since the last three months of 2018 for the technology-heavy benchmark.

The market’s bearish downtrend, despite glimmers of hope for the S&P 500 and Dow in the past several sessions, is underpinned by the spread of the COVID-19, the most severe epidemic to hit the world in generations.

See: Stock market won’t hit coronavirus lows until these 3 criteria are met, says Goldman Sachs

The disease, which has infected more than 800,000 people and claimed nearly 40,000 lives world-wide, was first identified in December in Wuhan, China and has caused a forced shutdown of business and personal activity, intended to limit the spread of the deadly pathogen. The halt in activity is delivering a gut punch to economies across the world, and elicited concerns about a global recession, which in turn has compelled investors to reprice assets considered risky across the board.

Read: 5 reasons the spread of the coronavirus in the U.S. could be worse than in Italy

All that said, the prospects over the longer term after such declines leaves cause for hope.

In the first, three months after the Dow has produced a quarter as ugly as this one, the blue-chip index returns 11.88% and 8.49% in the follow two quarters, according to Dow Jones Market Data. In a year, the Dow returns 22.75% on average. There are similar positive trends for the other two main benchmarks.

Here’s how the stock benchmarks perform after a quarter as bad as the one Wall Street is experiencing now:

Index 1 quarter % change 2-quarter period % change 1-year out % change
Dow 11.88% 8.49% 22.75%
S&P 500 12% 15.38% 27.79%
Nasdaq 3.79% 5.57% 9.54%
Source: Dow Jones Market Data

Here’s how the indexes far after a month as bad as the one in March, on average, with Dow down 12.5% in March so far, the S&P 500 off more than 11% and the Nasdaq down 9.5%, representing the worst monthly drops for the benchmarks since 2008:

Index 1-month 2-month 1-year
DJIA 0.05% 1.77% 5.69%
S&P 500 -0.15% 2.14% 8.72%
Nasdaq -0.47% 2.53% 8.35%
Source: Dow Jones Market Data

Check out: Man who called Dow 20,000 at end of 2015 says these are the 4 steps needed for a bona fide stock-market recovery

Read: Man who scored big wins during the 2008 financial crisis says the stock market could be ‘near a bottom’ if U.S. gets a coronavirus recovery plan

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