The U.S. stock market officially entered a market correction recently with the S&P 500 down 20% from all-time highs. Many have pointed to the potential of a recession and searches for the term are hitting record highs on Google.
Here’s a look at how investors have fared since the last recession in the U.S.
What Happened: A recession is typically defined as an economic downturn that sees a fall in the GDP (gross domestic product) for two quarters in a row. Other factors can include trade activity and employment figures.
From February 2020 to April 2020, the U.S. saw a short recession due to the COVID-19 pandemic. During the time, over 20 million jobs were lost and unemployment hit 14.7%. GDP for the country dropped 31.2% but quickly recovered in the next quarter.
The last recession in the U.S. that lasted more than one quarter was the Great Recession, which took place from December 2007 to June 2009. At 18 months, the Great Recession was the longest recession for the U.S. since World War II.
The subprime mortgage market is cited as one of the leading causes of the Great Recession. Items such as the fall of Bear Stearns and Lehman Brothers, failures of financial regulation and financial institutions taking on too much risk were among the factors that contributed to the recession.
The S&P 500 and Dow Jones Industrial Average lost half of their values during the recession, hurting investors and the retirement accounts of many Americans.
Here’s a look at how the S&P 500 has performed since the end of the Great Recession.
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Investing $1,000 in SPY: A $1,000 investment in the SPDR S&P 500 ETF Trust (NYSE:SPY), which tracks the S&P 500, could have bought 10.88 shares based on a close of $91.95 on June 30, 2009.
With SPY trading at $381.42 at the time of writing, the $1,000 investment would be worth $4,149.85 today, not including dividends.
Investors would have witnessed a 315% return on their investment in the SPDR S&P 500 ETF at the end of the Great Recession.
The gains would amount to 24.2% on average annually.
While not every year will have a positive return for the stock market or post 20%-plus returns, many point to a broad-based index ETF like the SPY as a way to see steady gains over time.
Photo: Nataliia Yankovets via Shutterstock
