Note: Ben Carlson, CFA, has a very informative blog over at Much of the following is adapted from one of his recent articles.

In case you’ve been hiding under a rock, the stock market hit seriously stormy weather this quarter for the first time in a while. As of Friday’s close, the S&P 500 index was down about 14% after bouncing back for three days from the low on Christmas Eve, when it closed down 19%.

As I write this, the market is up today on the last trading day of the year, but of course anything can happen in an environment as volatile as this.

But what if the quarter had ended on Christmas Eve? How would Q4 2018 rank compared with past bear markets? (I’ll exclude the 1930s from this list assuming we don’t fall into an economic depression. Nothing is impossible, but that seems unlikely after the U.S. economy printed GDP growth above 3% last quarter.)

Here’s a list of the worst quarters for stocks since 1940:

As you can see, Q4 2018 is keeping some rather dubious company. This list includes the grinding bear market of the mid-1970s, Black Monday, the flash crash of 1962, and of course the heart of the Great Recession of 2008.

But now that the quarter is behind us, what can we learn about future returns after periods like these? Here are the same periods with their subsequent one, three, and five year performances.

As you can see, average returns following these quarters were positive, with some appealing averages looking out one, three, and five years into the future.

Here’s Ben Carlson, CFA:

“Losses of this magnitude in such a short period of time can become paralyzing when trying to think about what happens next. The past is always easier than the present because we know what happened in the past but have no idea what’s going to happen in the future.

Even if it doesn’t offer a perfect roadmap for what’s to happen next, I do think the past can provide a range of potential outcomes, even though the future always creates its own path.”

To paraphrase the quote (often attributed to) Mark Twain, we know that history doesn’t repeat itself, but it often does “rhyme.”

As usual, clients will receive our quarterly market commentary and perspectives in full in mid-January. Until then, Happy New Year!