For many investors, the 2008 financial crisis and the economic shutdown caused by the coronavirus are the only two bear markets they have experienced in their lifetime. Where are we now compared to 2008? Here’s a way to examine this question and try to understand why, even though the S&P 500 and the Dow Jones Industrial Average have rebounded with gains equivalent to a new bull market since the trough of March 23, many investors remain skeptical. . The S&P and the Dow gained double digits in percentage this week alone.
About a month ago was a day that some people call Black Thursday, after President Donald Trump announced a travel ban to Europe, the NBA suspended its season, and Tom Hanks and his wife Rita Wilson became the Americans. the most famous for saying that they had contracted COVID -19.
A look back at equity performance after the market had about a month to digest the Lehman Brothers bankruptcy in 2008 shows reason for short-term reluctance to go back due to the financial crisis.
With a start date of October 14, 2008, about four weeks of trading after Lehman, the S&P 500, its industries and the Dow Jones Industrial Average, all posted poor results in the following one-month and three-month periods , according to a CNBC Analysis of Kensho data. The S&P 500 has fallen more than 14% in those months and three months, while the Dow Jones has dropped 11%, according to a CNBC analysis of Kensho trading data.
Public services were the best performers, down 4% in one month and the only sector up in three months, with a gain of 2%. Materials, the best performing sector this week, up almost 20% and on pace for its best week ever, dating back to 1989, ranked second in the S&P sector, ahead of only financial services, in the months after Lehman’s bankruptcy.
The actions come to know their best week since 1974, even with the jobless claims of Thursday bringing the balance sheet of the unemployment of three weeks to 16 million Americans. The recovery from the March trough was the fastest in history. In no previous period, including 2008, “the stocks failed to recover as many losses as quickly as they did this time,” wrote the Sentimental Trader in an article this week.
The Federal Reserve again helped Thursday, announcing a series of programs, including loans to small and medium-sized businesses, which will total up to $ 2.3 trillion. The central bank also gave more details on its plans to buy high-quality bonds and junk.
But the signs of a recession are everywhere: a Bloomberg tracker has put the rating at 100%. Meanwhile, a measure of the decline in electricity consumption shows an image that makes the Great Recession look healthy.
The COVID-19 models have improved their outlook. Former FDA Commissioner Scott Gottlieb noted on Thursday that models used by the federal government are showing better signs of the scale and duration of the epidemic, as well as far fewer deaths than a worse one. scenario.
There are a variety of professional investors who buy back for a variety of reasons: short sellers constricted by the sudden reversal and forced to hedge positions, fund managers who cannot afford to miss gains or risk taking a lot of behind the index. “It is traders and professional money running this market,” said Scott Wren, chief executive officer of the Wells Fargo Investment Institute, to the New York Times.
While some say mom-and-pop investors are not participating in this return, the Vanguard group, the investment giant synonymous with retail investors and financial advisers, has absorbed $ 47 billion in cash flows. ETF stocks in the first quarter, according to Bloomberg, suggesting that many were never scared, even as the market collapsed.
Mark Cuban remains cautious and raises funds. Howard Marks, co-founder of Oaktree Capital, says stocks are cheap and there are plenty of buying opportunities, but he still expects the market to fall further.
Unique points in market history are not statistically significant indicators of future performance. And there are few data points to use. When the dot-com bubble burst, there was not a single “incentive” event which facilitates the point of comparison. And after September 11, the markets were closed for several days immediately after the attack.
There are other reasons to be careful to read too much in a single crisis exchange period. The financiers fell by more than 40% during the three-month period referenced here linked to the Lehman bankruptcy, and for obvious reasons which should not happen again.
Another important point: the financial crisis and the bankruptcy of Lehman occurred very close to a presidential election, according to Nicholas Colas, co-founder of DataTrek Research, who studied the relationship between 2008 and today for the intelligence trade .
“There was an American general election on November 4 , which is right in the middle of this time series. The S&P 500 fell 5% in each of the next two days, as it was clear that we had to wait months for fiscal stimulus because D.C. did not have a mandate. This is really what made the lows of November. And why the lowest was in March 2009. “
As Republicans and Democrats fought for another round of stimulus this week, “that’s the big difference: D.C. has mastered the current crisis and has therefore responded much faster,” said Colas.