Unexpectedly Intriguing!
22 August 2007

Bear Recently, with the stock markets churning out major volatility of the kind we haven't seen February 2003, we noticed that we were getting quite a few posts from people searching for the worst months ever to have been invested in the stock market.

That's only natural that they found us through Google since we've put the entire history of the S&P 500 at your fingertips and that we've also taken the time to map out the worst rates of return ever obtained by the index and have actually built a "what if" tool that answers the question of what would happen if you had those worst-case rates of return.

But, as it turns out, we can't precisely answer that question with our S&P 500 data. Here's why. In doing all this previous analysis, we've used data that is derived from taking the average of the closing value of the S&P 500 index on every trading day during the course of a calendar month. This monthly average works well for generally describing where the S&P 500 was during that monthlong period, but it doesn't tell you what value it started out at, what highs or lows it may have hit, how long it was at any given level, or where it ended.

What we can do however is find the difference between the average monthly value of the index between any two months, even just one month apart.

So, that's what we've done! We scanned our average monthly data to find the five worst roughly monthlong investing periods captured by our data, which we've summarized in the table below:

The Five Worst Months for the S&P 500 Index Value
Starting Month Ending Month Starting Index Value Ending Index Value Percentage Drop
March 1932 April 1932 8.26 6.28 -24.0
November 1931 December 1931 10.39 8.44 -18.8
August 1931 September 1931 13.90 11.83 -14.9
September 1937 October 1937 14.37 12.28 -14.5
August 1937 September 1937 16.74 14.37 -14.2

The ranking of the data in the table above is based upon the percentage change in the average price per share of the S&P 500 stock market index between the indicated two months and does not incorporate inflation, dividend reinvestment, transaction fees, commissions or taxes.

Each of the five worst months for the stock market anticipated some of the worst parts of the Great Depression in the United States. The period from August 1931 through April 1932, which accounts for the top three of the worst monthlong periods ever, spans the stock market's reaction to the second wave of bank failures that began in this time period, along with tax increases passed in this time by the Hoover administration and the Federal Reserve's money tightening policies. The S&P 500 didn't hit bottom until June 1932, the month that ends most of the worst investing periods in U.S. history.

The fourth and fifth worst stock investing period ever coincides with a recession that began in the middle of the Great Depression beginning in mid-1937. This recession was largely driven by the Federal Reserve's decision to tighten the money supply by raising reserve requirements for banks in response to a perceived liquidity trap.

So, there you have it, Google searchers! The five worst months to have been a stock market investor in the S&P 500 of all time. At least, going by what we can extract from the data we have!

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