The world economy is being greatly affected by COVID-19. The great doubt that all investors have is knowing when we will recover the levels prior to this health and financial crisis. If we look at the recoveries experienced by the S & P500 after the largest falls recorded by this index in the last 50 years, we find one year: 2027.
Seven years is the average recovery from the three major crises that occurred in this period. It may seem like a long time for short investors, but not for those who fix their investments in the long term, which is what I have always recommended. Besides, world GDP recorded consolidated growths in subsequent years, up to 112% in the case of the 1973 oil crisis.
According to an analysis we have carried out at Feelcapital, the S&P 500 took 7.5 years to return to pre-oil crisis levels in 1973. After a drop of 48%, it was able to recover in July 1980 (+ 1%). On a positive note, the increase in world GDP registered growth of 143.56%, + 111.18% from its lowest point.
In 2000 came the next big drop in the S&P 500 with the dot.com bubble. There was a -49% drop in profitability. The recovery came in 2007 (+ 0.7%), 7.1 years later. The behavior of the GDP was also very positive in this section with + 72.59% (+ 67.18% from the ground).
In 2007, the credit crisis began, which caused the second great impact on the markets in the 21st century and affected all the economies of the planet. The S & P500 lost 56.78% in March 2009 and reached pre-crisis levels (+ 0.87%) in July 2013. In those 5.3 years the Gross Domestic Product of the countries also grew: + 33.24% (+ 28.01% since 2009 ).
The current health and economic crisis, also a consequence of the oil war between Russia and Saudi Arabia, has also been reflected in a dramatic way in the main benchmark index. March 23 marked a drop of -33.92%. In the midst of the pandemic's expansion, which is later affecting other developed countries, it is not surprising that the S & P500 will show a downward trend again in the coming weeks.
Despite the seriousness of the situation, the American economy, the true engine of world development, reached its all-time high in the days leading up to the pandemic and is in better condition to start the comeback. Health episodes in today's world are always overcome. History has shown that GDP consolidates its growth after crises.
Everything indicates that this time too the same patterns of recovery will be repeated and that growth will come no later than 2027, if not earlier. As a recommendation, it is necessary to take into account now more than ever active management, which can exceed in value the assets that have the indices as a reference.
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