Lesson 7.5 · 5 of 5 · Markets and the economy
Stock market crashes of 2008, 2020 and 2022: falls and recoveries
In the three crises, the S&P 500 fell on closing prices by 56.8% (2007-2009), 33.9% (2020) and 25.4% (2022). Getting back to the peak took about five and a half years, six months and two years. In 2008 and 2020 US government bonds rose; in 2022 they fell too.
Terms in this lesson
- Maximum drawdown
- The largest fall in price from a peak to the lowest point after it.
- Bear market
- A period in which the stock market falls at least 20% from its last peak.
- Bond
- A loan you make to a government or a company, at a fixed interest rate.
How far the S&P 500 fell in 2008, 2020 and 2022
Three columns showing the S&P 500’s fall from peak to low, on closing prices, without dividends: -56.8% from October 2007 to March 2009, -33.9% from February to March 2020, -25.4% from January to October 2022.
| Crisis | Peak | Low | Fall | Back to the peak |
|---|---|---|---|---|
| 2007-2009 | 9 Oct 2007: 1,565.15 | 9 Mar 2009: 676.53 | -56.8% | 28 Mar 2013, after 5.5 years |
| 2020 | 19 Feb 2020: 3,386.15 | 23 Mar 2020: 2,237.40 | -33.9% | 18 Aug 2020, after 6 months |
| 2022 | 3 Jan 2022: 4,796.56 | 12 Oct 2022: 3,577.03 | -25.4% | 19 Jan 2024, after 2 years |
S&P 500 closing levels, without dividends. “Back to the peak” = the first close above the earlier peak. With dividends reinvested, recovery could not have come later, because dividends add to the price. Sources: FRED (S&P Dow Jones Indices), Reuters, Bloomberg, Fox Business, AP.
Falls and recoveries are not symmetrical. After -56.8%, the index had to rise by 131% to get back to its peak. After -25.4%, by 34%. That is why a deep fall usually takes a long time to recover from.
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Create a free accountWhat caused each crisis
The crisis grew out of a big expansion of mortgage lending. US house prices fell by about 30% from mid-2006 to mid-2009. Lehman Brothers filed for bankruptcy on 15 September 2008. The recession lasted 18 months.
The WHO characterised COVID-19 as a pandemic on 11 March 2020. The economy shut down within weeks. The Fed cut its rate to 0-0.25% in March. The recession lasted two months, the shortest in the NBER’s records.
US inflation reached 9.1% in June 2022. The Fed raised rates seven times in 2022, from 0-0.25% to 4.25-4.50%. P/E ratios fell, and the NBER did not declare a recession.
What bonds did: why 2022 was different
Six columns showing calendar-year returns: the S&P 500 with dividends -36.55% in 2008, +18.02% in 2020 and -18.04% in 2022; 10-year US Treasuries +20.10% in 2008, +11.33% in 2020 and -17.83% in 2022.
In 2008 and 2020, long-term interest rates fell, and 10-year US Treasury bonds gained 20.10% and 11.33%. In 2022, rising interest rates were the cause of the crisis itself. When rates rise, older bonds paying lower rates lose value. So they fell too, by 17.83%.
A smaller market in the same crises, and the lesson for long-term investors
A smaller market
Romania’s BET index: a deeper fall and a far longer recovery
The Bucharest Stock Exchange’s BET index closed at a record 10,813 points on 24 July 2007. According to the exchange, its post-crisis low came on 25 February 2009, at 1,887 points (1,887.14 at the close): -82.5%. Only on 16 March 2021 did it close above that record again, at 10,844.45. In 2022 it fell 10.7%, while BET-TR, with dividends, fell 1.8%.
- Big falls are part of the journeyIn 15 years, the S&P 500 went through three crises like these. Anyone investing for decades should expect more.
- Recovery can take months or yearsSix months in 2020, five and a half years after 2007, over 13 years for the BET. No recovery is guaranteed, in timing or in outcome.
- What saves you is not having to sellKeep emergency money and money you need soon separate, so you never have to sell shares at the bottom.
- Diversification helps, but not always in the same wayBonds cushioned 2008 and 2020, but not 2022. Smaller markets, like the BET, can fall further than large ones.
Lessons are educational. They are not a recommendation to buy or sell. Investing involves risk and you can lose money. Sources: S&P 500 closing levels: 9 October 2007 (1,565.15), 9 March 2009 (676.53) and 28 March 2013 (1,569.19), Fox Business and AP; 2020 and 3 January 2022, FRED (S&P Dow Jones Indices, series SP500); 12 October 2022 (3,577.03), Bloomberg and AP; 19 January 2024 (4,839.81), Reuters; annual returns of the S&P 500 with dividends and 10-year US Treasuries, Aswath Damodaran (NYU Stern, updated 5 January 2026); Federal Reserve History (J. Duca, “Subprime Mortgage Crisis”; R. Rich, “The Great Recession”); AP, 15 September 2008 (Lehman Brothers); WHO, 11 March 2020; Federal Reserve, rate table; US inflation, BLS via FRED; recessions, NBER; BET: Bucharest Stock Exchange, “20 de ani de BET” press release (19 September 2017); the close of 25 February 2009 (1,887.14), that day’s market summary on Avocatnet.ro; Economedia (16 March 2021), Ziarul Bursa (17 January 2023).