What Happens After Small Cap Value Falls 20%?
- Carson McLean, CFP
- Apr 14
- 3 min read
Updated: Apr 23
A look at Small Cap Value vs. Gold in bear markets
When small cap value stocks fall 20% or more, it’s usually not the bottom. It’s usually the middle of the pain.
But what happens after that?
We analyzed 14 historical bear market triggers in the Fama/French US Small Cap Value Index to see what came next — and compared those outcomes to gold, which is often touted as a hedge.
Summary Table: Average Annualized Returns After SCV Bear Markets (Since 1973)
Asset | 1-Year | 3-Year | 5-Year | 10-Year | 15-Year |
Small Cap Value | -2.2% | 12.7% | 14.0% | 15.6% | 14.5% |
Gold | 15.9% | 7.1% | 8.6% | 7.6% | 6.1% |
Note: Gold’s 1-year average return is skewed by a single 80% spike in 1973. Without that event, its 1-year average drops from 15.9% to 6.0%.
Small Cap Value: Pain First, Payoff Later
In the year following a 20% drop, small cap value returns are often negative. That part is expected. But the recovery builds with time:
3-Year Average Return: 12.7%
5-Year: 14.0%
10-Year: 15.6%
15-Year: 14.5%
SCV doesn’t reward panic. It rewards patience.
Gold: A Quick Spike*, Then Fizzle
Gold looks great at first glance:
1-Year Average Return After SCV Bear Markets: 15.9%
But that number is skewed a bit by one moment: 1973, when the U.S. ended the gold standard and legalized private ownership. Gold spiked 80% in that time period.
*Take that out, and the 1-year average drops to 6.0% (inline with many bonds).
It’s not that gold doesn’t have its moments, it does. But when analyzing limited observations, a single event can distort the picture. Investors should be cautious drawing conclusions from averages built on a handful of noisy outcomes.
Over time, it fades:
5-Year Average: 8.6%
10-Year: 7.6%
15-Year: 6.1%
How Other Assets Performed After Small Cap Value Drawdowns
While the main story here is between small cap value and gold, it’s worth stepping back. What happens if we look at a broader set of familiar asset classes — stocks, bonds, and cash — and how they performed after these same SCV bear market starts.
Below are the average annualized returns across a range of assets, starting with the post-1973 period (where all data is available), followed by full-history results. These tables help round out the picture and reinforce what matters most: long-term discipline, not short-term reaction.
Summary Table: Average Annualized Returns After SCV Bear Markets (Earliest Common Data)
Asset | 1-Year | 3-Year | 5-Year | 10-Year | 15-Year |
Small Cap Value | -2.2% | 12.7% | 14.0% | 15.6% | 14.5% |
Market (CRSP 1–10) | -0.1% | 7.7% | 8.2% | 10.7% | 9.4% |
Gold | 15.9% | 7.1% | 8.6% | 7.6% | 6.1% |
20Y Treasuries | 9.6% | 9.1% | 7.4% | 8.2% | 7.7% |
5Y Treasuries | 8.3% | 7.2% | 6.3% | 6.5% | 6.2% |
T-Bills (1M) | 4.6% | 3.9% | 3.7% | 4.1% | 3.6% |
Full Period Comparison: Average Annualized Returns (All Available Data)
Asset | 1-Year | 3-Year | 5-Year | 10-Year | 15-Year |
Small Cap Value | -1.1% | 7.0% | 10.0% | 14.2% | 14.5% |
Market (CRSP 1–10) | -1.1% | 4.2% | 5.5% | 8.9% | 8.7% |
Gold | 15.9% | 7.1% | 8.6% | 7.6% | 6.1% |
20Y Treasuries | 6.1% | 6.4% | 5.3% | 5.6% | 5.3% |
5Y Treasuries | 6.5% | 5.8% | 5.2% | 5.3% | 5.2% |
T-Bills (1M) | 3.8% | 3.4% | 3.3% | 3.6% | 3.7% |
About the Author
Carson McLean is the founder of Altruist Wealth Management, a flat-fee fiduciary firm helping investors align their financial lives with long-term evidence-based planning.
He believes in transparency, planning over prediction, and that the best portfolios are built to endure—not react. Learn more at altruistwealthmanagement.com.
Sources:
Fama/French US Small Cap Value Research Index (Monthly Total Returns), via Ken French Data Library
Gold Spot Price data via DFA Returns Web Tool
Market, Treasury, and T-Bill returns sourced from DFA Returns Web Tool and internal calculations
Disclosures:
Past performance is not indicative of future results. This information is for educational purposes only and does not constitute investment advice. Returns shown are hypothetical, based on historical index data, and do not represent actual investment outcomes. Indexes are unmanaged and not available for direct investment.
Methodology Notes:
All returns shown are annualized forward returns from the first month following a ≥20% drawdown in the Fama/French US Small Cap Value Index.
“Earliest Common Data” table includes bear markets starting in 1973 or later the earliest date for which complete data exists for all listed asset classes.
“All Available Data” table includes all SCV bear markets since 1929; some asset classes (e.g., gold ) have fewer observations and may not appear across all periods.
Gold’s 1-year average return is skewed by a single 80% spike in 1973; without that event, the 1-year average drops from 15.9% to 6.0%.
