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Black Swan Events: Short-term Crisis, Long-term Opportunity

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This Markets in a Minute chart is available as a poster.

Black Swan Events and time to recovery

This Markets in a Minute chart is available as a poster.

Black Swans: Short-term Crisis, Long-term Opportunity

Few investors could have predicted that a viral outbreak would end the longest-running bull market in U.S. history. Now, the COVID-19 pandemic has pushed stocks far into bear market territory. From its peak on February 19th, the S&P 500 has fallen almost 30%.

While this volatility can cause investors to panic, it’s helpful to keep a long-term perspective. Black swan events, which are defined as rare and unexpected events with severe consequences, have come and gone throughout history.

In today’s Markets in a Minute chart from New York Life Investments, we explore the sell-off size and recovery length for some of these events.

Wars, Viruses, and Excessive Valuations

With sell-offs ranging from -5% to -50%, black swan events have all impacted the S&P 500 differently. Here’s a look at select events over the last half-century:

EventStart of Sell-off/Previous PeakSize of Sell-offDuration of Sell-off (Trading Days)Duration of Recovery (Trading Days)
Israel Arab War/Oil EmbargoOctober 29, 1973-17.1%271475
Iranian Hostage CrisisOctober 5, 1979-10.2%2451
Black MondayOctober 13, 1987-28.5%5398
First Gulf WarJanuary 1, 1991-5.7%68
9/11 AttacksSeptember 10, 2001-11.6%615
SARSJanuary 14, 2003-14.1%3940
Global Financial CrisisOctober 9, 2007-56.8%3561022
Intervention in LibyaFebruary 18, 2011-6.4%1829
Brexit VoteJune 8, 2016-5.6%149
COVID-19*February 19, 2020-29.5%19N/A (ongoing)

* Figure as of market close on March 18, 2020. The sell-off measures from the market high to the market low.

While the declines can be severe, most have been short-lived. Markets typically returned to previous peak levels in no more than a couple of months. The Oil Embargo, Black Monday, and the Global Financial Crisis are notable outliers, with the recovery spanning a year or more.

After Black Monday, the Federal Reserve reaffirmed its readiness to provide liquidity, and the market recovered in about 400 trading days. Both the 1973 Oil Embargo and 2007 Global Financial Crisis led to U.S. recessions, lengthening the recovery over multiple years.

COVID-19: How Long Will it Last?

It’s difficult to predict how long COVID-19 will impact markets, as its societal and financial disruption is unprecedented. In fact, the S&P 500 reached a bear market in just 16 days, the fastest time period on record.

Time for bear market to occur

Some Wall Street strategists believe that the market will only begin to recover when COVID-19’s daily infection rate peaks. In the meantime, governments have begun announcing rate cuts and fiscal stimulus in order to help stabilize the economy.

Considering the high levels of uncertainty, what should investors do?

Buy on Fear, Sell on Greed?

Legendary investor Warren Buffet is a big proponent of this strategy. When others are greedy—typically when prices are boiling over—assets may be overpriced. On the flipside, there may be good buying opportunities when others are fearful.

Most importantly, investors need to remain disciplined with their investment process throughout the volatility. History has shown that markets will eventually recover, and may reward patient investors.

Note: This post originally came from our Advisor Channel, a partnership with New York Life Investments that aims to create a go-to resource for financial advisors and their clients to navigate market trends.

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Maps

Mapped: The 10 U.S. States With the Lowest Real GDP Growth

In this graphic, we show where real GDP lagged the most across America in 2023 as high interest rates weighed on state economies.

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The Top 10 U.S. States, by Lowest Real GDP Growth

This was originally posted on our Voronoi app. Download the app for free on iOS or Android and discover incredible data-driven charts from a variety of trusted sources.

While the U.S. economy defied expectations in 2023, posting 2.5% in real GDP growth, several states lagged behind.

Last year, oil-producing states led the pack in terms of real GDP growth across America, while the lowest growth was seen in states that were more sensitive to the impact of high interest rates, particularly due to slowdowns in the manufacturing and finance sectors.

This graphic shows the 10 states with the least robust real GDP growth in 2023, based on data from the Bureau of Economic Analysis.

Weakest State Economies in 2023

Below, we show the states with the slowest economic activity in inflation-adjusted terms, using chained 2017 dollars:

RankStateReal GDP Growth 2023 YoYReal GDP 2023
1Delaware-1.2%$74B
2Wisconsin+0.2%$337B
3New York+0.7%$1.8T
4Missississippi+0.7%$115B
5Georgia+0.8%$661B
6Minnesota+1.2%$384B
7New Hampshire+1.2%$91B
8Ohio+1.2%$698B
9Iowa+1.3%$200B
10Illinois+1.3%$876B
U.S.+2.5%$22.4T

Delaware witnessed the slowest growth in the country, with real GDP growth of -1.2% over the year as a sluggish finance and insurance sector dampened the state’s economy.

Like Delaware, the Midwestern state of Wisconsin also experienced declines across the finance and insurance sector, in addition to steep drops in the agriculture and manufacturing industries.

America’s third-biggest economy, New York, grew just 0.7% in 2023, falling far below the U.S. average. High interest rates took a toll on key sectors, with notable slowdowns in the construction and manufacturing sectors. In addition, falling home prices and a weaker job market contributed to slower economic growth.

Meanwhile, Georgia experienced the fifth-lowest real GDP growth rate. In March 2024, Rivian paused plans to build a $5 billion EV factory in Georgia, which was set to be one of the biggest economic development initiatives in the state in history.

These delays are likely to exacerbate setbacks for the state, however, both Kia and Hyundai have made significant investments in the EV industry, which could help boost Georgia’s manufacturing sector looking ahead.

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