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Saturday, November 28, 2020

How Fast? Historically Fast.

How Fast? Historically Fast. Market drop

Last week as I was watching the markets I was thinking that this must be the fastest 30% drop in history. As things happen, I didn’t have the time to do the research, but luckily others did. The folks at Bank of America did the leg work, and CNBC did the reporting to show that our pandemic has broken the previous record from 1934.

 

Note: Capture from CNBC article https://www.cnbc.com/2020/03/23/this-was-the-fastest-30percent-stock-market-decline-ever.html

It is amazing how many of these drops occurred during the Great Depression compared to only 1 during the Great Recession. And to combat this, the US Government is debating (as of this writing) the largest stimulus package ever to help the economy recover. Many economists are forecasting that the US may already be in a recession which would be a dramatic turn of events.

I do have a quibble with the data though, or at least the reporting of the results. Looking back to 2008, there was also a 30% market drop that started on August 29 and passed -30% on October 10 for a period of 31 trading days which would place this in the number 4 position. This means that they must not define a drop as simply a drop, there must be some other criteria as well. But either way, this has been a historically fast drop.

To combat the devastating effects of the Coronavirus on the US economy, both Democrats and Republicans seem to be on the verge of passing an incredible $2tn stimulus package, which is almost 10% of US 2019 GDP. This number has grown faster than markets have fallen considering a meager $850bn package sought as recently as last week.  And while the sides are not converging on how to distribute this stimulus, they are in agreement on the amount. To put this package in perspective, all the way back in 2009 a $787bn stimulus was put in place at 5.5% of GDP.

So we may have another ‘winner’ for the biggest stimulus, which means that we should all be preparing for the markets to move higher once the pandemic begins to settle down. It seems clear to me that we will not be repeating the Great Depression or the Great Recession with this downturn. The package is too big, countries are taking the pandemic seriously (we can all quibble about the need to do more, or that too much is being done) and there will be an end. And when there is, I expect there to be significant investment opportunities available.

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