The Frequency and Severity of S&P 500 Drawdowns

market correction, market selloff

The Standard and Poor's 500 index is the most widely watched U.S. large cap index by investment professionals. It has appreciated significantly over the last three decades (over 1500% with dividend reinvestment since January 1993, the inception date for the SPY ETF), but in order to capture these returns, investors had to hold through numerous corrections of greater than 5% and two steep, multi-year drawdowns. In this post, we will examine the frequency and severity of S&P 500 total return drawdowns by year since January 1993.

SPY ETF Total Return Since Inception through 9/17/2021

SPY ETF Total Return Drawdowns Since Inception through 9/17/2021


In our data analysis, we examined the number of distinct drawdowns of 5%, 10%, 15%, and 20+% per year, along with the maximum drawdown off previous peak for each year.

· As used in the following analysis, “Distinct” is defined such that in order for there to be two drawdowns, the first drawdown must be completely recovered before the second drawdown can begin.

· If the S&P 500 entered the year currently in a drawdown, - the “count” for each drawdown within the magnitude of the current drawdown begins at one in the table. For example, in 2002 the S&P500 total return started the year in a 23.19% drawdown, so the count for each correction level started at 1.

· ‘Max Drawdown Off Previous Peak’ is defined as the maximum drawdown within that year from the previous high-water mark, even if that high-water mark occurred in a prior year.


The Bottom Line

This post seeks to provide investors with historical context on the drawdown characteristics of the S&P 500 total return index. During the 29-year sample period, the S&P 500 total return index was in a 5% or greater drawdown at some point during 25 out of the 29 sampled years, a 10% or greater drawdown in 20 of those years, a 15% or greater drawdown in 15 of those years, and a 20% or greater drawdown in 10 of those years. In some cases, the drawdowns lasted many years – but those who “weathered the storm” during corrections and bear markets were rewarded with excellent returns. Having appropriate expectations about returns, risk, volatility, and drawdowns can help investors stick with their long-term investing plan and ultimately succeed.