Do Markets Always Go Up?

"Markets always go up."
It’s a comforting phrase often used by investors to justify staying the course through turbulent times. But is it true?

In his latest annual letter, Larry Fink, CEO of BlackRock, pointed out that the first stock exchange opened in 1602 in Amsterdam. Fast-forward over 400 years, and according to Investopedia, there were around 80 major stock exchanges globally in 2023, with millions of investors participating in financial markets daily.

We’re all familiar with the classic upward-sloping line in investment brochures – a visual shorthand for the long-term growth of markets. But history tells a more nuanced story.

A History of Stock Market Crashes

Markets don’t go up in a straight line. Over the past century, there have been several dramatic market downturns. Here’s a reminder of some of the most significant crashes:

• Wall Street Crash, 1929 – Between 1921 and 1929, the Dow Jones Industrial Average surged sixfold. But by 1933, it had lost nearly 90% of its value from its peak. The Great Depression followed, lasting for years.

• The Kennedy Slide, 1962 – After a strong 27% rise in US markets during 1961, investors were stunned by a 5.7% drop in a single day in May 1962. Over subsequent months, the market fell by over 20%.

• Oil Crisis Bear Market, 1973–74 – Triggered by the OPEC oil embargo and high inflation, the S&P 500 fell 48% in less than two years.

• Black Monday, 1987 – On 19 October 1987, the Dow Jones dropped 22.6% in a single trading day, the largest one-day percentage fall in its history.

• Dotcom Bubble, 2000–2002 – The Nasdaq Composite skyrocketed by over 400% between 1995 and 2000, only to fall by nearly 80% by 2002 after the tech bubble burst.

• Global Financial Crisis, 2008–09 – At the depths of the crisis in March 2009, the Dow had fallen more than 50% from its pre-recession highs.

• COVID-19 Crash, 2020 – Markets reacted sharply to the global pandemic. The S&P 500 fell 34% in just over a month before an unprecedented rebound.

Other notable events not covered here include the Asian Financial Crisis in the 1990s, the aftermath of 9/11, and the Cryptocurrency Crash of 2018. Each of these periods brought uncertainty, fear, and significant losses for many investors.

The Dangers of Short-Term Thinking

Despite these crashes, markets have indeed recovered over time – and often gone on to reach new highs. However, the path is rarely smooth.

One striking shift in recent decades is how long investors hold onto their shares. In the 1950s, the average holding period for shares was around eight years. Today, it's closer to 5.5 months. That’s a massive reduction, reflecting not just technological change and easier access to trading platforms, but also a cultural shift towards short-termism.

With this mindset, there's an implicit belief that we should only hold assets that are rising in value. But in doing so, investors often fall into the trap of performance-chasing – selling underperforming assets too early and buying into winners too late. Moreover, if all the assets in your portfolio are highly correlated (moving up and down together), you’re likely exposing yourself to greater downside risk.

Evidence for Long-Term Growth

So, do markets really always go up?

The short answer is: over the long term, yes – historically. But not without risk.

A chart from J.P. Morgan's Guide to the Markets illustrates this point clearly. Over one-year periods, the range of returns for US equities spans from +61% to -43%. But over 20-year rolling periods, the range tightens significantly – between +18% and +4% annualised. This highlights the importance of time in the market over trying to time the market.

Diversification also matters. Holding a well-blended mix of asset classes – equities, bonds, alternatives, and even cash – means you’re less reliant on a single part of the market. While it may mean giving up some upside during market rallies, it can significantly reduce the pain during downturns.

Key Takeaways for Investors

1. Markets are volatile in the short term, but history shows that long-term investors have been rewarded with positive returns.

2. Short-term thinking is dangerous – not just emotionally but financially. Constantly checking and reacting can often lead to poor decisions.

3. Diversification is your friend – a well-constructed portfolio that blends different assets and styles is more resilient.

4. Know what you own and why – understanding how your portfolio is designed can help build the confidence to stay the course.

Final Thoughts