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In 2018 the S&P 500 experienced a -4.38% return, the first down year since the 2008 financial crisis.

So, how should we expect the S&P 500 to perform in 2019?

**Your guess is as good as mine.** Nobody can predict how the stock market will perform in any given year. We can, however, look at historical returns and see how the S&P 500 has historically performed after a down year.

**Analyzing Historical S&P 500 Down Years**

Since 1928, the S&P 500 has experienced negative inflation-adjusted returns in 29 different years.

If we take each of these negative return years and sort them from worst return to best, here’s what that looks like:

During these years when the S&P 500 experiences a negative return, the average return is -13.77%.

The worst return was -38.08% in 1931 and the least severe negative return was in 2011, with a -.87% inflation-adjusted return (*Note that 2011 had a slight positive return before accounting for inflation*).

Now, let’s take a look at each of the years when the S&P 500 experienced a negative return and see what type of return it experienced the following year:

In 19 out of the 29 years when the S&P 500 experienced a negative return, it experienced a positive return in the following year.

If we create a scatterplot with the down year return on the x-axis and the following year return on the y-axis, here’s what it would look like:

Each dot represents a down year/following year combination. For example, the dot highlighted below represents when the S&P 500 experienced a -20.00% return in 1930, then a -38.08% return during the following year in 1931:

As we can see from the scatterplot, most of the dots lie above the x-axis since returns are typically positive during the following year after a down year.

It’s also interesting to note that during the four times when the S&P 500 experienced a return of -30% or worse, the return during the following year was always positive, even after adjusting for inflation:

If we make a chart of the S&P 500 returns during the year following a down year, here’s what that would look like:

The average return in the year following a down year was 9.11%.

Now let’s extend our time horizon a bit and look at the 5-year annualized returns following a down year:

In 24 out of the 29 years when the S&P 500 experienced a negative return, it experienced a positive annualized return over the next five years, with an average annualized five-year return of 8.09%.

**Conclusion**

Here’s a summary of some of the interesting stats we learned in this post:

- Since 1928, the S&P 500 experienced negative returns in 29 different years.
- During these down years, the S&P 500 experienced an average return of -13.77%.
- In 19 out of the 29 years when the S&P 500 experienced a negative return, it experienced a positive return in the following year.
- The average return in the year following a down year was 9.11%.
- In 24 out of the 29 years when the S&P 500 experienced a negative return, it experienced a positive annualized return over the next five years.
- The average annualized five-year return following a down year was 8.09%.

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Great article, love the analysis! As a data nerd myself, this is very cool!

Thanks B! Glad you enjoyed this analysis 🙂

Great read!

Thanks Dan!