Published April 10, 2020
From its all-time high on Feb. 12, the S&P 500 hit a bottom of 2,237 on March 23. But will it still go lower this year? After the longest bull market in stock market history, the coronavirus dealt a body blow to the market. The market drop was the most precipitous in history. History tells us that the market will recover, but over what time period? Will it be a V-shaped or U-shaped or L-shaped recovery?
Since 1929, the S&P has suffered 14 bear markets, defined as peak-to-trough losses of 20 percent or more. That being said, bear markets result in declines of 39 percent on average, and last about 19 months. If this one feels particularly bad, it’s because it is. We’ve had a decline almost on a par with a typical full bear market cycle in just about three weeks.
Over the past 25 years, there have been seven virus-related market episodes. While there were market dislocations during these episodes, none of the infections were as contagious as the current coronavirus. While the Ebola virus outbreak in West Africa was potentially more problematic, it was contained quite quickly and a wider contagion was avoided. With this history as background, it’s easy to see why governments globally were perhaps lulled into a state of relative complacency.
The litany of records broken is long, but that is history. Central banks around the world have reacted to the challenge. The U.S. and other governments have launched massive stimulus packages. Help is on the way, but will that help cause more problems?
The massive stimulus packages will be inflationary. Money will become less valuable and things more dear. That […]