Everything is (probably) fine: how markets recover after crashes
Rose is editor at Financial Interest. With over 15 years of writing experience and a passion for personal finance, she focuses on making money less intimidating, more interesting, and occasionally even fun 🙌
Last updated 30th June 2026
12 min read
Markets have been having their fair share of wobbles lately.
And during any dip, it's easy to ignore that sensible voice in your head telling you they've always bounced back, and instead stare at those red numbers and think: what if it’s different this time?
The trouble is that every market crash feels unprecedented when you're living through it. Nobody knows how far markets might fall, how long the pain will last, or whether a recovery is just around the corner or years away.
So, let's take a look back at five of the most significant market downturns in recent history. What caused them? How long did recovery take? And what happened to investors who stayed invested, moved to cash, or kept adding money throughout the chaos?
Financial Interest provides guidance, not advice. If you’re unsure about anything, speak with a qualified adviser. When investing, your capital is always at risk. Past performance does not guarantee future results.
1987: Black Monday
It might sound like a dodgy DFS sale, but Black Monday was something much more depressing – a global, severe and largely unexpected stock market crash that took place on October 19th, 1987.
Markets had risen very quickly, leaving prices stretched and investors nervous about rising interest rates and economic tensions.
When stocks started to fall, automated trading strategies designed to limit losses triggered huge waves of selling, turning the decline into an outright disaster.
The Dow Jones Industrial Average (DIJA) – an index tracking 30 large, blue-chip U.S. companies – lost 22.6% of its value in just one session. This was the largest single-day fall in history, obliterating roughly $500 billion in market capitalisation. In the space of just 24 hours, stock markets across Asia and Europe suffered falls of up to 23%, and the S&P 500 fell by 20.5%.
The speed and scale of the collapse sent shockwaves through financial institutions worldwide, with many fearing the beginning of a prolonged economic crisis on the scale of the 1930s.
But the panic proved short-lived. In just two trading sessions after the crash, the DIJA gained back 57% of its total losses.
By mid-1988, the US stock market had fully recovered, and by December 31, 1988, the DJIA was nearly 25% higher than it was at the end of Black Monday.
The recovery for the UK stock market was a little slower, but it still fared much better than many investors feared.
If you'd invested £10,000 in the FTSE 100 in July of 1987 – a few months before the crash and amidst a strong bull run – by November it would've dropped to around £6,400. The index then briefly touched its pre-crash level in early January 1990, before dipping back down again, with a full, sustained recovery arriving around March 1991, almost four years after the crash.
Fun (or not-so-fun) fact: It was in response to Black Monday that the New York Stock Exchange introduced the "circuit breaker" system, which temporarily halts trading if the market drops by a certain percentage compared to the previous day's close.
But what if you'd got spooked, sold your shares during the dip, and fled to cash instead?
After all, this was a golden era for interest rates, with the Bank of England base rate reaching almost 15% by the end of 1989. Tempting.
Well, you'd have recovered your £10,000 by April 1991 – just one month after the stock market's sustained recovery. So far, so close. But while cash interest rates were cut steadily through the 1990s, the FTSE 100 kept climbing.
By the end of 1997, the investor who stayed in the market would have seen their original £10,000 grow to £21,018 – or even more if they'd reinvested dividends – while the cash saver would have £16,012. A gap of nearly £5,000, just for pressing the panic button at the wrong moment.
2000-2002: Dot-com bubble burst
If the 1990s taught investors anything, it's that nothing makes people throw money at something faster than the words 'dot com'.
Upstart tech companies drove a stock market surge starting in the mid-90s, and the speculative bubble that formed was fed by easy money, market overconfidence, and reckless speculation. The NASDAQ Composite index – the premier benchmark for the US tech sector – rose by 582% in just five years.
But as with all bubbles, it eventually had to pop.
In 2000, several online and tech companies declared bankruptcy and faced liquidation, with the NASDAQ falling more than 75% by 2002, the S&P 500 by 49%, and global markets by almost 33%.
By 2007, markets had clawed back most of those losses and investors were once again looking at positive returns:
But the recovery was short-lived...
2008: The global financial crisis
Just as investors had started breathing a sigh of relief, a new crisis was taking shape.
This time the culprit was the US housing market – banks had spent years handing out mortgages to borrowers who couldn't afford them, bundling that debt into complex financial products and selling it on to investors worldwide.
When it unravelled, the consequences were global – the S&P 500 fell a further 57% from its 2007 peak, the FTSE 100 lost around half its value, and global equities were down 18% at their lowest point.
All in all, the period from 2000-2009 is sometimes referred to as the "lost decade", due to the fact that the S&P 500 had ended up roughly where it began after 10 years.
But the stock market is nothing if not resilient. Conditions stabilised by 2010, with the S&P 500 reaching new all-time highs by 2013 during a decade-long bull run.
And for investors who kept their nerve throughout the dot-com crash and the global financial crisis, the numbers told a different story.
Someone who began investing £100 every month into the S&P 500 at the start of the year 2000 would have seen their portfolio dip below what they'd put in during the worst of both crashes.
But dripping money in gradually – otherwise known as cost averaging – would also have meant buying more units at lower prices. So, when markets recovered, they’d recover faster.
By 2015, someone who had contributed a total of £19,200 in monthly instalments would have seen their portfolio grow to £31,111 – a 62% growth overall, despite starting at the worst possible moment and continuing to invest through two of the biggest crashes in modern history:
A useful historical lesson next time you consider pausing those monthly contributions.
But how much would saving £100 a month into the bank have got you during the same time period? Interest rates were pretty high for a time – peaking at 6% in early 2000 – before being cut dramatically in response to the recession.
You'd have been feeling smug for a while, but overall, you'd have ended up almost £9,000 worse off:
2020: Covid crash
We need hardly be reminded of the relentless "unprecedented times" of 2020: disinfecting bananas with antibacterial wipes, attempted ambitious home haircuts and social lives conducted exclusively over Zoom.
And for the markets, things were just as crazy.
Triggered by global shutdowns and just a general feeling that no one really knew what was going on, by the end of March 2020, the S&P 500 was down 34% from its previous February peak, with the FTSE 100 facing a similar fate.
Global stock markets suffered their worst decline since the 2008 recession, wiping more than $6 trillion from global markets in just six days.
But unlike the other crashes we've looked at, this one was over almost as soon as it began, and was the fastest recovery of any sustained market crash over the past 150 years.
We say "sustained" because US markets experienced a so-called "flash crash" on 6th May 2010, which lasted for approximately 36 minutes in total – not quite long enough to qualify as a proper financial crisis when most people could run a 5k faster.
The S&P 500 recovered and reached new highs in just a few months, going on to triple in value by 2026. Global market losses were recovered by August 2020, and have since achieved an average annual return of 11%.
Yet again, the FTSE 100 was a little more sluggish, taking until 2021 to mostly recover – but has since gone on to enjoy several new all-time highs including reaching 10,000 points for the first time in history in January 2026.
And if you'd held your nerve as a global index fund investor during the pandemic, you'd have been rewarded. £10,000 left untouched would have dipped unnervingly to just over £9,100 in March 2020 – but sailed on to become almost £16,000 by the end of 2021.
But... what about if you'd left your £10,000 in cash instead?
The Bank of England base rate reached its lowest point ever in March 2019, dropping to just 0.1%. By December 2021, they'd reached the lofty heights of 0.25%. Great news for anyone renewing their mortgage; bad news for savers.
We won't make you look at what would be a very boring chart for this one. You'd have ended up with £10,112 – just £112 in interest over three years.
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When recovery takes a generation: the Nikkei nightmare
Of course, stock market recoveries aren't always so straightforward. Some lulls last so long it feels like recovery will never happen. And for some people, it never does.
Japan's Nikkei 225 – the premier stock market index for the Tokyo Stock Exchange listing the top 225 blue-chip companies – is, in some ways, the ultimate cautionary tale.
In the 1980s, Japan was the envy of the world. The country had become a global manufacturing powerhouse – exporting cars and electronics across the globe – and investors had become convinced that it would overtake the US as the dominant economic superpower.
Loose monetary policy at the Bank of Japan, combined with rampant optimism, fuelled a surge in stock and property prices. The Nikkei climbed from around 13,000 in 1985 to almost 39,000 by the end of 1989, tripling in just four years.
Alarmed by inflation and the scale of the speculation, the Bank of Japan raised rates on Christmas Day 1989 and the market reached its all-time high just four days later – before investors began to grasp what was coming.
Rates were hiked five times in quick succession, making borrowing suddenly expensive for the companies and individuals who had built their entire positions on cheap debt. The whole thing began to collapse like a house of cards.
More than $2 trillion was wiped from the market in the first year alone, and by August 1990 the index had already halved from its peak.
Land prices followed stocks down in 1991, consumer confidence evaporated, and Japan entered a prolonged period of deflation – where falling prices led consumers to delay spending, which caused prices to fall further. By 2003, the Nikkei had lost over 80% of its value.
If you'd invested £10,000 at the peak in December 1989, you'd have been waiting until 2024 to get your money back – and it would've been worth an awful lot less after 35 years of inflation.
Although sustained declines like this in developed markets are historically unusual, they can happen. And when they do, there are no guarantees about how long the road back will be.
But what about, if instead of investing one lump sum at the peak and waiting for its value to return, you instead continued to invest £100 per month, every month, with the kind of faith and patience that would test even a medieval monk?
And the end of a long, hard 35 years, you'd have contributed a total of £42,100, and your final portfolio value would have been £107,363 – a £65,263 gain.
Of course, this example is just to illustrate the principle: pound-cost averaging can still significantly boost long-term returns, even through depressingly prolonged downturns.
In reality, as a UK investor putting pounds into a yen-denominated index, currency movements would have affected your real returns – and the yen has weakened considerably against the pound over this period, meaning some of those gains would have been eroded when converting back to sterling.
Inflation would also have eaten up a chunk unless you'd upped your contributions each year accordingly.
But still, it goes to show how patience can win out against panic, even when you'd least expect it.
So, what can we learn from all this?
Mostly that markets crash – they always have, and they almost certainly always will.
Whether it's a dot-com fever dream, a housing market built on quicksand, or a global pandemic that had us all panic-buying toilet roll – something will always come along to spook investors.
But history suggests that most crashes are followed by a recovery and new highs – but sometimes it takes months, sometimes years, and occasionally decades – which is exactly why money you'll need in the near future has no business riding out stock market swings, and why betting everything on one country's fortunes – however promising they look – is exactly the kind of thing that would keep your financial adviser up at night.
For globally diversified investors, the numbers so far have been encouraging. Since 1970, there's been 42 years of gains for global markets compared to just 14 years of losses, and only twice in the past 55 years has there been more than one negative year in a row.
Unless you have a crystal ball, trying to time the market is a fool's endeavour – especially when missing just five of the best market days can easily halve your total return.
Next time you panic, think of your investing journey less as a disaster movie and more a very stressful theme park ride that, historically speaking, almost always ends with you in one piece and slightly richer than when you got on.
Looking back, the investors who came out worst were the ones who saw the red numbers, convinced themselves it was different this time, and got off the ride.
Financial Interest provides guidance, not advice. If you’re unsure about anything, speak with a qualified adviser. When investing, your capital is always at risk. Past performance does not guarantee future results.
