Can you handle the drop?

A look back at the COVID market crash

Within one month, the market essentially crashed by 30%. It didn’t take long to recover, but not all market crashes have such a rapid recovery. Here we take a look back at the price action of some stocks during the three periods noted below:

Pre-Covid price → Covid lows → today’s price

• MSFT - $185 → $137 → $409

  • 26% drop to a 199% rise

• AAPL - $81 → $57 → $182

  • 30% drop to a 219% rise

• V - $210 → $147 → $276

  • 30% drop to a 88% rise

• RY - $108 → $78 → $138

  • 28% drop to a 77% rise

• TD - $76 → $53 → $76

  • 30% drop to a 30% rise

• GRT.UN - $74 → $49 → $69

  • 34% drop to a 41% rise

• ENB - $56 → $36 → $50

  • 36% drop to a 39% rise

• FTS - $58 → $46 → $55

  • 21% drop to a 20% rise

• KO - $60 → $38 → $62

  • 37% drop to a 63% rise

• WMT - $40 → $36 → $60

  • 10% drop to a 67% rise

• DOL - $46 → $37 → $118

  • 20% drop to a 219% rise

• MRU - $58 → $52 → $72

  • 10% drop to a 38% rise

• ATD - $46 → $33 → $74

  • 28% drop to a 124% rise

• CNR - $124 → $99 → $172

  • 20% drop to a 73% rise

• WCN - $135 → $105 → $227

  • 22% drop to a 116% rise

• SPY - $337 → $229 → $517

  • 32% drop to a 126% rise

Observations

The technology sector has exploded since the crash - the one reason why the market is at all-time highs. The industrial and financial sectors have recovered well and produced quality gains from pre-covid prices. Recession proof stocks like WMT, MRU, and DOL did not lose as much value as the overall market and thus, have made significant gains. The two sectors of utilities and real estate suffered massive blows and are still struggling today due to the higher interest rate environment. The energy sector was dependent on where on the energy spectrum you fell on. As a midstream pipeline distributor, ENB has not fully recovered; but if you look at ATD whose primary revenue source is fuel (oil), it has exploded.

The rise of some of these stocks, and the S&P 500 index, has been remarkable in just a short span of four years. How can you sustain this? If such a crash was to occur again, imagine reaching those COVID lows from these all-time highs. The SPY would suffer a drop of 126% in that case. If we go back to pre-covid levels, the drop would be around 53% - which would be more in line with past market crashes of large scale.

Conclusion

I encourage you to test this out with your portfolio. Better yet, see what a 50% crash would do to any individual stock or index fund within your portfolio and ask yourself if you would be okay with it. Could you handle the stress? Would you be confident in the stock recovering over the long-term? Would you have cash on hand to splurge in your favourite picks?

Picking quality stocks is highly important, because it is only those stocks that will survive and prosper even after a significant crash. Better yet, focus on recession proof stocks. If you aren’t well versed in this, stick to low-cost etfs and index funds.