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Tuesday, January 06, 2009

DOW Annual Performance Following A 15% or More Annual Decline

Last year's 33.8% decline in the DOW tied for third with 1930 for the worst annual declines in the DJIA. Can we draw any conclusions about the future from the past?

This chart from Schaeffer Research shows the annual return of the DJIA following the largest annual declines that range from -15.4% in 1941 to -52.7% in 1931.

The table shows that following annual declines of over 30% the market in the following year gained anywhere between a loss of 52.7% and a gain of 81.7%.

After an annual decline of 15% or more, four times the losses were 20% or more and four times the next year saw gains of at least 40%.

Only a monkey with a dart can make a prediction for next year based on that data!

1 comment:

  1. The problem with this analysis is what the comparison is. If the comparison is to all the post war recessions, then yes, the odds are good that the recovery in the stock market in 2009 is going to be positive. But if the comparison is to 1929 or Japan in 1990, then the odds are good that the economy and stock market are still going lower, possibly significantly lower. My view has been for a while that the current environment is a once in a generation event (i.e. most similar to the Great Depression and Japan), so I remain a PERMABEAR.


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