When market crashes occur, the question of how low can the stock market go is a common one. Investors are scared and want to try and get a decent grasp on what the extent of losses can be. It’s unnerving to think about the wealth destruction occurring, and investors will continually ask in response how low can it go? How bad can it get?
Maybe by looking at other historical market crashes, we can get a feel for where we are, what the worst case scenario is, and let’s identify a few levels in the Dow and what that means for the overall decline.
When looking at how low the stock market can go, let’s first identify some key levels in the Dow and what that means for overall market declines.
The Dow Jones Industrial Average peaked at 29,568. So, the following levels are interesting to note:
- 25% decline: 22,176
- 30% decline: 20,697.6
- 35% decline: 19,219.2
- 40% decline: 17,740.8
- 45% decline: 16,262.4
- 50% decline: 14,784
As you can see above, a 50% decline in the stock market takes us back to stock market levels not seen since 2013. As of writing, we’ve crossed below the 30% decline on the Dow which takes us back to levels seen toward end of 2017.
So, what can previous stock market crashes tell us about how low the stock market can go?
In just 15 months ago or so, in December of 2018, we saw a really quick 20% market decline, but the market popped right back.
During the 2007-2009 market crash, the S&P lost 56.4% from its highs that it reached in October of 2007. The market didn’t bottom until March of 2009. This market crash was caused by a combination of a bursting housing bubble and leverage in the financial system.
During the crash after the dot-com bubble during the 2000-2002 timeframe, the S&P lost 49.1% from its high of 1527. The tech heavy Nasdaq plunged 50%.