Submitted by Taps Coogan on the 12th of March 2020 to The Sounding Line.
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The following chart shows the percentage decline of the Dow Jones Industrial Average during every major selloff since 1987.
As of the close of markets on March 11th, 2020, the current Coronavirus inspired selloff has produced a 20.4% fall from the previous all-time high in just 20 days. That represents the quickest 20% decline since at least 1987.
However arbitrary, a 20% decline is the technically accepted definition of the start of a bear market. With both the S&P 500 and the Dow Jones now off over 20% as of the close markets yesterday, the current bull market, the longest in American history, is officially over. It was ended by the fastest start to a bear market in at least 33 years.
After the 1987 crash, the only selloffs that have seen greater percentage declines than the current selloff have involved formal recessions or multi-year bear markets (the Global Financial Crisis, the Dot-Com burst, and the 1990 Recession). Even relative to selloffs immediately before recessions, the current selloff is anomalous. When the US economy entered into a recession in March of 2001, the Dow was off ‘just’ 16%. When it entered a recession in December 2007 the Dow was off less than 7%. By the time US GDP growth was negative in Q1 2008, the Dow had declined less than 14%. While the Dow would decline 54% during the ‘Great Recession,’ the bulk of the decline came during the depths of the recession and financial panic.
That implies that the current market selloff, which shows no signs of slowing, is either getting ahead of itself or it implies that it is sensing the risk for a truly massive recession. Perhaps it is both.
Whether or not that recession manifests will likely come down to how much damage the Coronavirus outbreak does before it subsides. While there is no sign that the outbreak in Europe or the US is slowing yet, to the extent that one believes the figures, it took China a little more than one month to get control over its outbreak.
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