April 2025: Navigating the Stock Market’s “Elevator Down, Stairs Up” effect
This metaphor encapsulates the emotional rollercoaster of investing and highlights the patience and resiliency required for long-term success.
In the world of investing, the adage “elevator down, stairs up” succinctly captures the stock market’s tendency to grow slowly but decline rapidly. Recent events, such as the implementation of sweeping tariffs by the U.S. government in April 2025, have reignited discussions around this phenomenon. Historically, several market downturns exemplify this pattern, each with its unique causes, declines, and recovery periods.
The stock market reality in April 2025 is akin to an elevator plummeting. The question is not whether it’s a good idea to sell this low (for a long-term investor, the answer is a resounding NO), but how long you can wait or hold on for the recovery to occur? Historically, recoveries are often gradual, similar to climbing a long flight of stairs. Also, it tends to be a good moment to invest if you have ‘free cash’ available.
Current Context: April 2025 Tariffs
In April 2025, the U.S. administration implemented broad tariffs, including a 10% baseline tariff on all imports and higher rates on specific countries. This action led to a significant market downturn in early April, with the S&P 500 experiencing its worst week since the pandemic, dropping 9.1% and nearing bear territory, down 17% from its peak. “Bear territory” refers to one of two types of market situations - Bear or Bull: a Bear market is a sustained period in which stock prices decline by 20% or more from a recent high, often accompanied by widespread investor pessimism and selling. Economists have raised concerns about potential recessions and increased unemployment rates. Investors are now reassessing the potential path of interest rate hikes, leading to a rapid sell-off in equities – the "elevator down" moment. The fear of rising rates and persistent inflation caused a quick exit from many positions, but the subsequent recovery is characterized by careful evaluation of economic data and company performance, leading to a more measured pace of gains.
Historical "Elevator Down" Moments
Throughout history, the stock market has witnessed several periods where the "elevator" fell precipitously:
The 1929 Great Crash: The stock market crash of 1929 stands as one of the most severe in history. The Dow Jones Industrial Average (DJIA) plummeted by 13% on "Black Monday" (October 28) and another 12% on "Black Tuesday" (October 29). By July 1932, the overall approximate decline got to about 89% down.The recovery was painstakingly slow, taking about 25 years for the market to return to its pre-crash levels. This prolonged downturn contributed significantly to the Great Depression, underscoring the profound impact such crashes can have on the broader economy.
The 1973–1974 Bear Market: In the early 1970s, a confluence of factors—including the Nixon Shock, the OPEC oil embargo, and political turmoil—led to a substantial market decline. From January 1973 to December 1974, the DJIA fell about 44%. The recovery was protracted, taking approximately 8 years for the market to regain its previous highs.
The 1987 Black Monday: On October 19, 1987, the DJIA experienced a single-day percentage drop of 22.6%, and the S&P 500 also saw a significant drop of around 30% on the same day. DJIA dropped from August 1987 to October 1987 by approximately 37%. Despite the severity of the crash, the recovery was relatively quick. The DJIA took approximately 2 years to return to its pre-crash highs, and the market rebounded up more clearly after about 4.5 years.
The Dot-Com Bubble (2000–2002): The Nasdaq Composite index, heavily concentrated in technology stocks, began its decline in March 2000, eventually falling by nearly 80% by October 2002. The S&P 500 also experienced a significant downturn of about 50%. The recovery for the Nasdaq was a long one, taking roughly 15 years, finally reaching its March 2000 peak again in 2015. The S&P 500 recovered more quickly, taking about seven years to reach its 2000 high.
The Global Financial Crisis (2007–2009): After the dot-com recovery of the S&P 500 came another “Elevator Down” moment with the financial crisis of 2007–2009. The S&P 500 dropped about 56% from October 2007 to March 2009. The recovery took approximately 4.3 years, with the market reaching its previous highs by early 2013.
The COVID-19 Crash (2020): In early 2020, the onset of the COVID-19 pandemic led to a rapid market decline. The S&P 500 experienced a rapid decline of over 30% in March 2020. Remarkably, the market rebounded swiftly, recovering within approximately 5 to 6 months. This was thanks to substantial stimulus measures and the rapid progress achieved in vaccine development.
Learnings from the past and key conclusions
The recovery phases following these "elevator down" moments have consistently been more protracted than the declines themselves, with the notable exception of the COVID-19 crash. The factors that influence this recovery and the time it takes are:
Investor Confidence: After a sharp decline, investor sentiment is often fragile. It takes time for confidence to rebuild as investors wait for concrete evidence of economic recovery and stability.
Fundamental Reassessment: Market crashes often force a reassessment of asset valuations. The "stairs up" involves a more careful analysis of company earnings, economic indicators, and future growth prospects.
Gradual Economic Improvement: Economic recoveries themselves are typically gradual processes. Factors like employment rates, consumer spending, and business investment tend to improve incrementally, which in turn supports a more measured stock market recovery.
Profit-Taking: As the market recovers, investors who bought at lower levels may take profits, creating periods of sideways movement or minor pullbacks, further contributing to the "stairs up" dynamic.
The "elevator down, stairs up" metaphor remains a relevant and insightful observation about the stock market’s behavior during and after significant downturns. The current market situation in April 2025 serves as a timely reminder of this principle, as investors navigate the gradual climb following a recent bout of volatility. Patience, resiliency and a focus on fundamentals to invest when is lower are key to successfully navigating the "stairs up" phase of the investment journey. While declines can be swift and severe, recoveries often take considerably longer, influenced by the underlying causes and prevailing economic conditions.
