The current Post-COVID Inflation drawdown is the least severe equity drawdown of the group, but it may not be over as of the writing of this article. The average equity drawdown across the equity drawdown events is -45%, with the largest (-83%) and longest drawdown occurring during the Great Depression. Each drawdown event begins from its unique prior peak value for either stocks or bonds. In Exhibit 2 we identify seven major equity drawdown events (top panel) and six major bond drawdown events (bottom panel) in reverse chronological order. stock market’s life (about 94% of the time) has been spent in a drawdown from the prior peak, suggesting that drawdowns are a normal part of the return-seeking process.ġ We use monthly total returns of the Ibbotson US Large Cap Stock and US Intermediate-Term Government Bond indexes to March 1994, then daily total returns on the S&P 500 and Bloomberg US Treasury indexes thereafter to capture more granular drawdowns when this higher-frequency data became available in Bloomberg. The graph shows that equity drawdowns have been far more severe and prevalent than bond drawdowns. 1Įxhibit 1 is a drawdown or “underwater” graph, where each new stock or bond peak value is reset to 0% to focus the eye on drawdowns. We survey a history of market drawdowns, first reviewing nominal stock and intermediate-term government bond drawdowns, then real (inflation-adjusted) stock and bond drawdowns from 1926 to June 2022. It manifests through time as stock-market and bond-market drawdowns, which are more intuitive (and painful) representations of risk. Standard deviation is a good summary risk measure for statisticians, but it is not intuitive to many investors. In addition to lower risk, bond returns were uncorrelated to stock returns (0.05), providing a diversification benefit. The higher return of stocks came with higher risk – a standard deviation of 18.6% versus just 4.4% for bonds.
These returns compare to an inflation rate of 2.9% over that history. government bonds from January 1926 to June 2022.
equities and 4.9% for intermediate-term U.S.
0 kommentar(er)
